The Pilot Money Guys

Questions From The Flight Deck: 

What the heck is ChatGPT, and what jobs will most be impacted?

• What is it...? https://en.wikipedia.org/wiki/ChatGPT
• What jobs are at risk...? https://www.visualcapitalist.com/cp/which-jobs-artificial-intelligence-gptimpact/
• What about ChatGPT from an investing perspective? ETFs: AIQ, BOTZ, ROBT, AIEQ – see Kwanti.
• https://www.visualcapitalist.com/how-smart-is-chatgpt/

AI in the Cockpit? https://theaircurrent.com/technology/natural-language-processing-aviation-atccockpit/

Optimism – It's NOT cool!

Have we always been pessimistic? Or is it a new phenomenon?

“The preacher man says it’s the end of time and the Mississippi river, she’s goin dry...the interest is up and the stock market’s down and you only get mugged if you go downtown...”

Great survival story...Hank Williams Jr.

If Everything is Getting Better, Why Are People So Pessimistic?

“...Those are three emotional biases toward pessimism. We also have cognitive biases that incline us that way, foremost among them being the “availability heuristic.” This is a feature of the psychology of probability also documented by Tversky, in collaboration with the Nobel Prize–winning economist Daniel Kahneman. Forty years ago, Kahnemanm and Tversky argued that one of the ways the human brain estimates probability is by using a simple rule of thumb: the more easily you can recall an example of something, the more likely you estimate it to be. The result is that anything that makes an incident more memorable will also make it seem more probable. The quirks of the brain’s ability to retain information will bleed into our estimates of a risk’s likelihood.”

“...The bad‐ dominates‐ good phenomenon is multiplied by a second source of bias, sometimes called the illusion of the good old days.

People always pine for a golden age. They’re nostalgic about an era in which life was simpler and more predictable. The psychologist Roger Eibach has argued that this is because people confuse changes in themselves with changes in the times. As we get older, certain things inevitably happen to us. We take on more responsibilities, so we have a greater cognitive burden. We become more vigilant about threats, especially as we become parents.

...At the same time, we see our own capacities decline. As we get older, we become stupider in terms of the sheer ability to process and retain information.

There’s a strong tendency to misattribute these changes in ourselves to changes in the world. A number of experimental manipulations bear this out. If you have people try to make some change in their lives — say, to eat less fat — often they become convinced that there are more and more advertisements for fatty foods.”

Ten Reasons Clients Should Be Optimistic About The Future:

https://www.fa-mag.com/news/ten-reasons-clients-should-be-optimistic-about-the-future-72935.html?section=68&utm_source=FA+Subscribers&utm_campaign=d580b67712-FAN_IP_Next_Chapter_Parnassus_050422_COPY_01&utm_medium=email&utm_term=0_6bebc79291-d580b67712-240228216 

1. The US is a net oil exporter.
2. Higher short-term interest rates.
3. Inflation is moderating
4. Companies are great at passing along costs.
5. Now is the time to seek out lower cost providers/products.
6. The Federal Reserve is not a bunch of dummies.
7. Companies know how to cut expenses to boost profits.
8. The stock market has been the best way to make money consistently for decades.
9. The US dollar is the world’s reserve currency.
10. Riding High...

Some Alternatives:

• 
• https://www.nbcnews.com/business/economy/how-is-the-economy-doing-right-now-inflationinterest-rate-hikes-rcna73613
• Inflation cooling – 4.9% in April – announced today – 10 May 2023.
• The Fed doesn’t have as much control as you think. And no more, QE!
  • https://awealthofcommonsense.com/2023/05/some-things-the-fed-doesnt-control/
• US households are in excellent shape, the ratio of liabilities to net wealth has declined 50% since the 2008 financial crisis, and household leverage is currently at levels last seen in the early 1980s; see chart below. If the unemployment rate rises, consumer spending will slow down, but the starting point for US households is very strong.
  • Balance Sheets Are Barriers Against Contagion...Household, corporate and bank balance sheets are more resilient today than during past crises.

Factfullness: Ten Reasons We’re Wrong About the World—And Why Things Are Better Than You Think.

https://www.amazon.com/Factfulness-Reasons-World-ThingsBetter/dp/1250123828/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=

Author Hans Rosling

Quotes

The first is from philosopher, historian, psychologist, William James: “Pessimism leads to weakness, optimism to power.” 

The second from the late former Chairman of the Joint Chiefs of Staff, Army General Colin Powell: “Perpetual optimism is a force multiplier.”

Resources

• https://www.theatlantic.com/newsletters/archive/2022/09/bill-melinda-gatesfoundation-goalkeepers-report-poverty/671415/
• https://www.morningstar.com/articles/1103776/why-optimism-is-a-secret-weapon-ininvesting
• https://www.cbo.gov/publication/58612#:~:text=In%20CBO%E2%80%99s%20projections%2C%20the%20U.S.%20population%20increases%20from,accounts%20for%20all%20population%20growth%20beginning%20in%202042
• https://www.forbes.com/advisor/investing/is-inflation-good-or-bad/
• https://www.reference.com/world-view/inflation-good-bad-5bcd09b085e0a85d

Special Test Flight Edition – The Banking System: How Do Banks Operate And What Happens When They Take On Too Much Risk – Silicon Valley Bank?  ~Exclusive Captain Rob “Rubber Mallet” Eklund

Where is the best cup of cappuccino in New York City, according to Rob’s new friend Luciano Pavarotti?!?

• Actually, a friend of a friend of Pavarotti...Samir Sanbar. Previously served at the United Nations as International Communications and Media Consultant.

How do banking systems work? How do they benefit the consumer and make our money safer?

• In exchange for leaving your money with them, the banks pay you an interest on those dollars
• What does fractional banking system mean?
• What were some banking factors that led to the subprime mortgage crisis of 2008?
• What did long-term government bonds have to do with the failure of Silicon Valley Bank?
• What if your broker-dealer (aka custodian) goes bankrupt? What happens to your investments?

“Banking is a very good business. If you don't do anything dumb.” ~Warren Buffett

“The good bankers, like good tea, can only be appreciated when they're in hot water.” ~Jafar Hussein, a Malaysian banker.

Aviation News:

• Age 67 retirement? - https://www.lgraham.senate.gov/public/index.cfm/2023/3/graham-senators-reintroduce-bill-to-address-pilot-shortage#:~:text=The%20legislation%3A,be%20renewed%20every%20six%20months
• Bill reintroduces Let Experienced Pilots Fly Act….
• Pilot Incapacitation recent events, Southwest, Envoy, and others
  • https://www.youtube.com/watch?v=hPUbr6SPcy8 

Questions From The Flight Deck:

• How to vote proxy if you’re a stock owner.
• DFAS – Discontinue survivor benefit plan (SBP) for military retirement?
  • Pros/Cons
• Tax season lessons learned: DFAS withholding, Social Security withholding – defaults to 8%...spouse earning money – 68 cents versus 76 cents. Safe harbor – 100% of this year or 110% of last year is a safe harbor to prevent penalties. 
• The stock market has been down – why not get 5% guaranteed T-bills.
  • Sell bonds? Sell stocks? What are your savings goals? What if rates drop?
• US Dollar World Reserve Currency: https://realeconomy.rsmus.com/why-the-dollar-remains-the-worlds-reserve-currency/
  • “Why the dollar remains the world’s reserve currency, and will stay that way”...APR. 17, 2023 BY JOSEPH BRUSUELAS
  • We find the recent discussion around the end of the dollar dominance bereft of any linkage to the reality of international finance and understanding of the dollar’s role as the anchor of the rules-based order that governs global economics.
  • Economies like China that run surpluses need dollar-based demand from the United States to make up for their own weak consumption and high savings rates. 
  • Rather, the recent conversation is stoked by global grievances about the relative disparity of economic power and the dead end in which some economies find themselves.
  • Pilot Money Guys Flight #55: US Dollar as World Reserve Currency
  • Here’s How Reserve Currencies Have Evolved Over 120 Years
    • https://www.visualcapitalist.com/cp/how-reserve-currencies-evolved-over-120- years/

• CDs (callable vs noncallable)
• When to sell I-bonds
  • The composite rate for I bonds issued from November 2022 through April 2023 is 6.89
  • New rates are 4.3% composite: 3.4% Inflation component and 0.9% fixed rate.
  • Kevin “The Professor” Gormley:
    • https://www.youtube.com/watch?v=v1SACB6S7kQ

Meat of The Mission:

Get up for health and wealth...

Should you own Gold?

Two things: Gold as an investment – diversification? Gold as a currency in times of economic collapse.

https://awealthofcommonsense.com/2015/07/a-history-of-gold-returns/

Why is gold attractive? Hot button issue...

• Gold standard...vs. Fiat currency – us versus them. Very political and ideological.

Three Options For Owning/Investing In Gold: 

1. Physical gold in your home, safety deposit box.
   1. How could one use physical gold in an economic collapse
   2. https://atlantagoldandcoin.com/how-will-gold-silver-coins-be-used-following-a-monetary-collapse/
2. Gold and/or Gold Miners ETF in your portfolio. Is it a diversified?
   1. How has gold performed? What about bonds?
   2. https://awealthofcommonsense.com/2015/07/a-history-of-gold-returns/
   3. Ben Carlson’s stance: “My stance on gold has always been that I have no idea what’s going to happen with it in the future. No one else does either.”
   4. As of 2015...Even after the most recent crash, gold is actually up around 10% per year over the past decade. But it’s unlikely many individuals actually participated in this rise unless they held physical gold. The Gold ETF (GLD) only had around $3 billion in assets in 2005. It then grew to nearly $80 billion by the peak in 2011-12, before falling back down to less than $25 billion more recently. Unfortunately, that means many of the bandwagon investors got sucked in very late to the bull market and lost a lot of money in the ensuing crash.
3. Physical Gold in a Self-Directed IRA.
   1. Why?
   2. Can I own physical gold in my IRA?

• If you opt for the actual metal, certain criteria apply for it to be held in an IRA. “The precious metal coins or bars must meet IRS fineness standards and must be held by the IRA trustee instead of the IRA owner,” says Moy. “The gold must be stored in an IRS-approved depository.”
  • https://www.investopedia.com/articles/personal-finance/091814/analysis-should-you-get-gold-ira.asp

Tax Implications of Gold Coins...28% 

• Physical gold (including the ETF – GLD) is tax as collectible.
• However, the IRS considers physical quantities of metal to be a “collectible.” For collectibles, such as coins, art and bullion, the standard tax rate is 28%. As a result, owning physical gold, or owning funds that themselves own physical gold, means that you can pay a higher maximum capital gains rate of 28%.
• https://smartasset.com/taxes/avoid-capital-gains-tax-on-gold#:~:text=This%20is%20called%20the%20capital,a%20general%20rate%20of%2028%25

The Ascent of Money: A Financial History of the World - By Niall Ferguson

Pilot News

https://www.reuters.com/business/aerospace-defense/european-regulator-rules-out-single-pilot-flying-by-2030-2023-02-06/

Question From The Flight Deck:

Q: Are all annuities Crap?

A:  Annuities are NOT investments; they are Insurance income products, and most of them are sold as something they are not - again, not investments! People that hate annuities compare them to investments - life insurance is used when people die. Annuities can help people that live too long or need mortality credits to decrease anxiety or smooth out the journey.

LEFP is not licensed, nor makes commissions on annuities, but we do sometimes recommend them through third parties. Find someone who does NOT make commissions on annuities but believes that they are sometimes necessary and EVEN helpful as a part of a financial plan. 2022 was the number one year of annuities sales in history. 

• Contingent Deferred Annuities: CDAs, Retire One - “Constance”
  • No changes in taxation – Roth IRA, Taxable brokerage account
  • Remain invested in Mutual Funds, ETFs
  • Turn off anytime...

A CDA acts as a sort of “risk wrapper” for your IRAs, Roth IRAs and taxable brokerage accounts, but the insurance portion is unbundled from the underlying accounts so that investments in ETFs and mutual funds may be covered. The amount of income you receive from the CDA (your coverage base) is calculated from the total of your initial investment, and will not drop below that amount, no matterwhat the markets do. In fact, your coverage base may go up, and those annual income payments can range from 3% to 6%. Keep in mind that excess withdrawals CAN impact your coverage base, however.

The CDA’s income payments trigger when you need them and are paid by the insurance company for the rest of your life, even after your assets are depleted.

https://www.financial-planning.com/news/2022-was-the-best-annuity-sales-year-in-history 

https://awealthofcommonsense.com/2023/03/talk-your-book-lifetime-income/ 

Q: Should I own bonds?

A: There are two reasons to own bonds.

1. Decrease recovery time in your portfolio: TYPICALLY, (not 2022) bonds act as ballast. During a recession, Treasury bonds act as a flight to safety, plus Fed may lower interest rates which may cause bond prices to increase. See JPMorgan Chase Charts.
   • It’s all about the math...50% decline in your investment dollars requires a 100% increase to get back to even.
     • $100,000, 50% loss = $50,000. 100% gain = $100,000.
   • A 25% decline in stock prices requires
     • $100,000, 25% loss = $75,000. 33.3% gain required to get $100,000.
   • https://www.hughcalc.org/getback.php
   • Then why would anyone be 100% equity???  
2. There is actually yield, interest now. T-Bills
   1. Annuities, higher
   2. CD, Money Market higher
   3. Long-term investors are better off after bond price declines and interest rate increases from 2022

Main Topic – Tax-Efficient Giving Strategies

• When to use a Donor Advised Fund - https://www.morningstar.com/articles/1039795/pros-andcons-of-donor-advised-funds
  • Pros:
    • The major benefit of donor-advised funds is the ability to take an immediate tax deduction on the amount contributed. Donors contributing cash can take a deduction of up to 60% of adjusted gross income...
    • Donors can also contribute a wide range of appreciated assets, including stocks, bonds, mutual funds, privately held business interests, restricted stock, and even bitcoin and other cryptocurrencies. Donors contributing securities or other assets can take a deduction of up to 30% of adjusted gross income.
  • Cons: 
    • Donor-advised funds also come with an additional layer of annual administrative costs. Fidelity, Vanguard, and Schwab all charge a 0.6% administrative fee for accounts with balances up to $500,000. All three have tiered expense structures, so accounts with balances greater than $500,000 are subject to lower fees in percentage terms.
    • These charges are in addition to the fees on the underlying investments (operating expenses for mutual funds and exchange-traded funds, or trading commissions for individual stocks and bonds). All these fees come out of the amount donated, making donor-advised funds less cost-efficient than donating directly to a charity.

• Gifting highly appreciated stock

https://www.blackrock.com/us/financial-professionals/insights/donate-stock-to-charity-for-tax-savings

Gift your star performers. Maximize your savings on capital gains taxes by donating your strongest-performing stocks. They may be your favorite holdings, but this is not goodbye – replenish your portfolio by purchasing the same security (or a similar exposure). Because the stock has appreciated since your original purchase, your new cost basis will be higher, which creates the potential to harvest tax losses to offset gains in future years.

• When do you get to deduct your giving on your tax return?

https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/tax-deduction-wisdom-should-youitemize/L8Ln7K0Gp

“Add up all of these taxes, but remember the IRS limits your state and local tax deduction to $10,000.

Tip: Add your total state and local taxes (capped at $10,000) to the mortgage interest number you calculated above. If the total is larger than your standard deduction, you'll likely benefit from itemizing.”

• Lump your giving? 
• Other reasons to give? 

The immediate effect on our physiology…Psychologytoday.com - Dr. Eva Ritvo - https://www.psychologytoday.com/us/blog/vitality/201404/the-neuroscience-giving

 “Neuroscience has demonstrated that giving is a powerful pathway for creating more personal joy and improving overall health...Dopamine, serotonin, and oxytocin make up the Happiness Trifecta…benefits are better moods, sleep, digestion, memory, learning, and appetite, blood pressure decreases…Oxytocin is known as the “cuddle hormone.” trust and empathy are enhanced. Oxytocin is also anti-inflammatory and reduces pain, and enhances wound healing. “So, if giving allows us to secrete all the chemicals at once, we owe it to ourselves to give as often as possible!

Quote: Nelson Mandela once said: “I learned that courage was not the absence of fear, but the triumph over it. The brave man is not he who does not feel afraid, but he who conquers that fear.”

Kim "KC" Campbell - "Fear can prevent us from achieving success or it can lead us to a greater path of growth and change if we harness it effectively."

Your story:

• Mother and father...encouraging
• You developed a higher calling, higher purpose...?
• Air Force Academy, the first time that a father and daughter both served as cadet wing commander
• What values, principles about yourself, and others you admire are most valuable to you?

The Flight - Bagdad

What?!? A-10 got shot down the next day??? Launched on CSAR mission?

Retirement August 2021...

Leadership Lessons for us, our audience:

• Simultaneous fear and courage...you admit to fear.
• Leadership lessons for airline pilots now - going through tough negotiations, multiple near misses...trying times
  • All of us can use these lessons with spouses, kids, friends, family. We all go through stuff!
• How did/do you balance being a wife, mother, Group CC, Entrepreneur, etc?
• As we get older and comfortable, having achieved things, how do we stretch ourselves???
• How do I use your lessons in leadership and character with my kids?
• What are some of the failures you've learned the most from?
• Humility, courage, respect, balance. The greatest leadership attributes are courage, integrity and balance.

Air Force Afterlife:

What are you transitioning to in the business sector? Victory Strategies

• https://www.victory-strategies.com/#services-section

Keynotes speaking, center for leadership and character development

How do we create a culture of courage at our business?

Links for show notes:

• @kchawg987
• www.kim-kc-cambell.com
• Flying in the face of fear; a fighter pilot’s lessons on leading with courage
  • https://www.amazon.com/Flying-Face-Fear-Fighter-Lessons/dp/1394152353/ref=sr_1_1?crid=321E4AO1WBGRB&keywords=kc+campbell&qid=1676310099&sprefix=kc+cambell%2Caps%2C98&sr=8-1 
• Aiming Higher: A Journey Through Military Aviation Leadership (Military Mentorship Mastermind
  • Aiming Higher: https://www.amazon.com/Aiming-Higher-Leadership-MentorshipMastermind/dp/B0B1CP8G5X
• Victory Strategies:
  • https://www.victory-strategies.com/#services-section 

Dave Goetsch shares his fascinating story about his investing experience and journey. He started as an investor that was emotionally tied to every up and down the stock market experienced. He was known  as the “Chief Worrier.”  

Through his own studies and the counsel of his financial advisor, he’s more at peace with the short-term craziness of the stock markets, and continuous news headlines of impending doom we all seem to hear daily. In many ways, Dave’s journey is very similar to all of ours. However, he’s better at telling the story since he’s a Hollywood writer!  

Finally, Dave’s passion for helping others learn through his experience is contagious. It was truly an honor to have Dave on our podcast, and we’re grateful for his desire to share his personal story so others can learn and eventually come to be a bit more comfortable with the uncertainty of the stock market.  

“...when you have a plan for the future, for kids and retirement...You don't know [everything]  exactly...but you have a plan. The effect of that is that you can feel better now. And that's the big, big  game changer, which is awesome to have less stress so that you can spend more time with your  family...spend more time on the things you care about.” 

~Dave Goetsch 

Book that helped Dave Goetsch go from the “Chief Worrier” to the “Transformed Investor”: The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future

Airline News

• Delta Airline Pilot Contract Updates:
  • https://www.cnbc.com/2022/12/03/delta-pilots-would-get-more-than-30percent-in-pay-raises-under-new-contract-deal.html
  • The agreement includes an 18% increase on the day the contract is signed, then a 5%  increase one year later and two 4% raises in each of the following years. It also includes  a one-time payment of 4% of 2020 and 2021 pay each, plus 14% of 2022 pay.

Being a Father: 

• https://vitaliy.substack.com/p/being-a-father?utm_source=emarketing&utm_medium=email&utm_campaign=cid75618&utm_content=emailid143539 

People have memories – markets do not.  

“One of the best things about markets is that they don’t have memories. They don’t remember  what happened last week or last year. They don’t even remember what happened a minute ago.  Prices change based on what’s happening right now and what people think will happen in the  future.” ~David Bood, Chairman and Founder of Dimensional.  

https://www.dimensional.com/us-en/insights/people-have-memories-markets-dont?utm_source=linkedin&utm_medium=organic&utm_campaign= 

Obsession with Recessions:

• https://seekingalpha.com/article/4547443-the-recession-obsession

Other resources:  

• Why can’t we time the market before a recession? 
  • Flight #43 Myth vs Fact in Down Markets. What the evidence says with Apollo Lupescu,  VP Dimensional 

• Here what Kevin and Charlie say about a “Dead Cat Bounce”!
  • https://youtu.be/oI-DqJfD6Ho 

Resources:

• https://awealthofcommonsense.com/2013/08/ignore-noise/
• https://podcasts.apple.com/us/podcast/stay-wealthy-retirement-
  show/id1260181429?i=1000470057040

The Narrative
There’s a lot going on...in the past few years; Covid, Stock Market stress, impending recession, inflation, politics...crypto collapse???

Our audience is especially vulnerable to information (news) overload: Traveling; downtime pick up the phone and review news, talk about it during the 3-hour flight, TV on in the hotel room, gym, etc.

Where is the balance?

What is the truth?

Why does this matter – Why does the news and/or events make me angry.

• Being disrespected or treated unfairly?
  
  • Examples? Higher taxes, wealth re-distribution
• Fear...threatened, violated, offended?
  • Is my preferred way of life at risk?
• Being interrupted when you are trying to achieve a goal
  • Retirement???
• Feeling powerless...
  • Loss of control
  • Can’t control the short-term gyrations of the market.
  • Uncertainty is a feeling of powerlessness...

Being angry is a natural reaction. When experienced in excess, however, you might ask yourself "why am I feeling so mad?" and it can result in health problems, including depression, anxiety, high blood pressure, heart disease, and more. It's okay to ask yourself, "why am I feeling so mad?", but it's important to deal with those emotions.

Example of uncertainty:

All issues are about a million times more complex than we’d like to believe. We search for simplicity to help us cope and explain things. We hate uncertainty.

Loss of control:

https://dariusforoux.com/about/

 

Does Social Media Leave You Feeling Angry? That Might Be Intentional

 

September 13, 2022 - New York Times reporter Max Fisher took a deep dive into the impact of social media in his book, "The Chaos Machine: The Inside Story of How Social Media Rewired Our Minds and Our World." He shares with us how platform leaders have prioritized profit and growth over safeguards and how the polarizing effect of social media is only speeding up.

“...This is because algorithms consistently select content that evokes anger and outrage from its users to maximize engagement. And sometimes, those extreme emotions turn into extreme actions.”

 

Serenityrecovery.org

Neurobiology & Anger

In the moment anger feels good. It’s so powerful that it overrides our rational and moral frameworks we’ve established because it comes from our primordial, original limbic system: the center of the brain – where our most automatic emotions like fight or flight originate. This response system controls adrenaline, heart rate, alertness, and other instincts that prepare you for battle or a quick escape. Similar to other addictions like gambling, extreme sports, or even drugs like cocaine the brain releases a dopamine reward when you’re angry which clouds your judgment and can lead to terrifying consequences.

Anger & the Ego
Anger can often times be triggered by underlying feelings of weakness or insecurity. Anger is an easy way to feel powerful and get attention in the moment and overcome feelings of inadequacy. It also gives you a feeling of being in control of things that in reality you don’t have control over. The sad irony is when anger takes over, not only do you not have control of the things making you angry, you’ve also lost control of yourself. The cycle continues because it damages you in the eyes of the people who you want to connect with most which just adds to your ego insecurities.

 

So what do we do to tune out the noise and be happy?

Guard your mind!

“A man is but the product of his thoughts. What he thinks, he becomes.” Ghandi “I will not let anyone walk through my mind with their dirty feet.”

What do we do?

1. Know the science.

1. Knowing what drives your emotions
2. Investment academic research

2. Maintain A/C control...Focus on what really matters in your life. Focus on what you can control and realize there is a lot you cannot control.

3. Be a long-term investor...in all aspects of life.

4. Prepare for the inevitable:

1. “Chairfly”
2. Planning

• Know the source and the motivation of the source of the information
  you’re taking in...
  • Read the financial news to take the emotion out of it.
• How to avoid making decisions based on the noise?
  • From the book Decisive: How to make better choices in life and in
    work. Chip and Dan Heath.
    • Normal decision process in four steps:
      • You encounter a choice. But narrow framing makes you miss options.
      • You analyze your options. But the confirmation bias leads you to gather self-serving information.
      • You make a choice. But short-term emotion will often tempt you to make the wrong one.
      • Then you live with it. But you’ll often be overconfident about how the future will unfold.

 

Q&A: Most common client questions lately:

Election Lessons Learned:

“Vote with your ballot not yourlife savings.”

~Dimensional founder David Booth

https://my.dimensional.com/elect-to-leave-your-portfolio-alone

Will the stock market do worse now that xxx party has won and the election is over?

What do the numbers show? Does the stock market do better or worse when “X” party is in office, power?  

Lessons learned – do not anticipate or try to outguess the markets. Maintain discipline. Lots of advisors said: After the mid-terms, the markets will “pop.” After Biden was elected lots of folks said markets will tank.  

Some things are unknowable...in the short-term. Luckily, we do not have to know.  

“Did anyone predict that Joe Biden would be elected president and that the US stock market would have its strongest election-week results since 1932?”

What the heck is FTX and how did Sam Bankman-Friedlose $16 billion in one day?

https://www.visualcapitalist.com/ftx-leaked-balance-sheet-visualized/

Founder and CEO Sam Bankman-Fried –FTX.

What crypto companies went bankrupt?

FTX's move marks the third crypto company to seek bankruptcy protection this year, following Voyager Digital and Celsius Network. The filing also clouds the fate of BlockFi, a crypto lender that FTX helped bail out with $400 million earlier this year.  ~CBS News

Boring is beautiful!  

• TRUMPLOSE tokens –on the FTX balance sheet.  Created by FTX to enable a betting market on whether Donald Trump would win or lose the 2020 presidential election.

 https://awealthofcommonsense.com/2022/11/boring-is-beautiful-in-investing/

“Those old stodgy blue-chip stocks in the Dow that pay dividends and have stable cash flows are crushing the innovation-led stocks that have more potential than profits in 2022.

This is in stark contrast to the FOMO days of 2020 and 2021 when it felt like the only place to put your money was the most intoxicating of investments.

French philosopher Blaise Pascal once wrote, “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

The investor play on words here would be: “All portfolio problems stem from investor’s inability to stick with a boring old asset allocation.”

Successful investing should be boring. It should be long-term in nature. It requires patience and discipline and the ability to ignore the madness of the crowds.

But you can’t brag about boring to your friends and co-workers. No one writes glowing profiles about normal people who diligently save and invest their hard-earned money, keep fees to a minimum and stay the course.

That’s not sexy.

Sexy is SPACs, meme stocks, IPOs and life-changing amounts of money in a short period of time.

Why wait decades to build wealth when you witnessed someone else do it overnight?

"Flight #45 –Retirement Income:

The Narrative
Why is investing during retirement very different from investing in the accumulation phase of your life?

Example: A) You are an accumulator, and you invest $12,000 January 1, 2020.  You fall asleep and wake up on December 31, 2020.  B) You are in retirement taking monthly income.  You have $12,000 on January 1 and you are taking monthly income of $1,000 per month.

Accumulators are like chickens and eggs...you’re involved in producing eggs. Retirees are like pigs, and they are producing bacon.  You are committed in retirement!

How to avoid running out of money in retirement:

1. Know your budget – Spending plan. 
   1. Spend Conservatively. 
   2. Spending flexibility. 
2. Social Security timing.
3. Keep investing! (In equities)
   1. Reduce volatility.
   2. Buffer Assets – Avoid selling at losses. 
4. Taxes:
   1. Minimize RMDs
   2. Roth Conversions when income declines –65-70.
5. Life expectancy – Longevity.  
   1. E.g., client age 85. 
6. Sequence of return risk
   1. https://www.schwab.com/learn/story/timing-matters-understanding-sequence-returns-risk
      1. Avoid withdrawing assets in a down market.
      2. Will I have to change my retirement goals or retirement income due to the down market?

Part 2 – How to mitigate the above risks...especially #6.  

1. Have a plan – Pick one or a combination of...
   1. Annuities?
      1. Annuities in general –Sales commissions! Fees...
      2. SPIA –Best, but no access to principle.
      3. Contingent Deferred Annuity –Constance from RetireOne
         1. Risk wrap: Same investments, income guarantee.
         2. Turn on –Turn off.
   2. Retirement Bucket approach?
   3. 4% Rule
   4. Target Date funds
   5. Dynamic spending, ongoing planning.
      1. Monte Carlo...MGP
      2. What’s wrong with online calculators?
         1. One said I’ll have $12,500 and the other said $19,500.
2. Why does seeking advice pay off?
   1. Annual withdrawal rates can change
   2. What about underspending in retirement?
      1. Don’t get to age 90 with millions left over...unless that’s your goal.
      2. Spend more in the early part of retirement...the retirement smile.
   3. Mitigating the risks
   4. What if...!
      • Higher Inflation
      • Part-time job
      • Reverse mortgage
      • Long Term Care Risks

From Retirement Researcher –Wade Pfau, Professor of Retirement Income at the American College.

Q&A: Most common client questions lately:

Will I have to change my retirement goals or retirement income due to the down market?

• Short-term risk versus long-term risk, taxes, inflation, overspending
  • Sequence of return risk...
  • https://www.schwab.com/learn/story/timing-matters-understanding-sequence-returns-risk
•  Worst year ever for bonds?
  • https://www.advisorperspectives.com/articles/2022/10/17/six-good-things-to-tell-clients-about-this-horrible-market

Article: “Six Good Things to Tell Clients About This Horrible Market” by Allan Roth, 10/17/2022.

Four Options Plus Combo Option for Preparing for Potential Airline Disability

1. Be ready to live on your maximum disability payout.
   1. Takes careful budgeting and cash flow management.
   2. For example: Be ready to freeze your “core” budget at FO pay.   Or on one person’s salary if you are a dual-income family.
2. Create a (mega) Emergency Fund.  Work to self-insure.  Becoming your own insurance company!
   1. We believe the six-month emergency fund is the minimum for airline pilots.  One year is even better. 
   2. An emergency fund of cash or cash-like investments gives you great flexibility. 
   3. It can bridge the gap until you are able to get your FAA medical back.  
3. If appropriate and cost-effective, purchase additional disability insurance. 
   1. Consider how a long-term disability would affect your retirement savings.  For example, if you can live on the current disability insurance your airline offers, would you also be able to save for retirement? 
      1. Your retirement plan assumes annual savings into tax-advantaged retirement accounts. 
4.  Become financially independent!
   1. This most likely applies to the pilots that are nearer to retirement.  If they lost their FAA medical, then these folks could more easily transition into early retirement.
   2. On the other hand, this is a great goal for all pilots to shoot for as soon as possible.
   3. This step encompasses working on all the steps listed here as well as saving in your retirement accounts.
5. Combination of 2 or more options 1-4.
   1. Additionally, we suggest exploring other skill sets that may allow for additional income away from aviation in the case of long-term disability.
      1. What do you love to do outside of flying?
      2. Have fun with it and dream a little!
         1. For example, become a financial planner!
         2. Pilots are much more marketable than they think.

Information about today’s podcast:

Dimensional Fund Advisors (DFA) - https://us.dimensional.com/

“The assets we(DFA)manage represent more than shares in a portfolio.  That money represents the savings, sacrifice, and dreams that investors have entrusted to us. We take this responsibility seriously. Founded in 1981, Dimensional has a long history of applying academic research to practical investing. We offer a full range of equity and fixed income strategies designed to target higher expected returns.”

Apollo Lupescu, PhD, Vice President, Dimensional Fund Advisors:

Apollo Lupescu is vice president at Dimensional Fund Advisors, one of the premier investment managers in the world, managing around $650 billion in assets. He is a nationally and internationally recognized speaker who has delivered hundreds of lectures and seminars to financial professionals and individual investors on various investment topics. Apollo is considered “secretary of explaining stuff”, because he has a knack for explaining complicated issues in a clear and understandable way.

Apollo has been with Dimensional in Santa Monica for over 18 years, and prior to that he taught at the University of California. Apollo also served in a variety of roles with the US Department of State, from which he formed his own consulting firm, Apollo Consulting Group.

He received his PhD in economics and finance from UC Santa Barbara. Apollo also holds a BA in economics from Michigan State University, where he competed and coached water polo. Rumor has it that even to this day he is still playing, and more recently he is not only in the pool, but also learning how to surf in the ocean.

Top Investor Myths... Common Questions & Lessons Learned:

What does the evidence tell us about what to do in down markets? What do our innate biases tell us to do and why are they the opposite?

1. Myth -Successful advisors need to “time the market.”

Common Question: “Clearly, the stock market is going down and going to get worse, why not just go to cash...?”

The idea that an investor wants to avoid downturns in the market is an understandable and reasonable response. The challenge in the execution.  Most of the time, it turns into a bigger loss and more stress than staying invested. In summary, mistiming the market comes with punishing consequences.  

From our experience, when someone sells their equity positions to relieve stress, they simply replace the stress of being in the market with the stress of being out of the market and wondering when they should get back in. There is no magic signal. In other words, they exchange one stress for another. 

We miss the best days in the market... therefore “portfolio performance could be decimated.”  See JPMorgan “The Case For (Always) Staying Invested”https://www.jpmorgan.com/wealth-management/wealth-partners/insights/the-case-for-always-staying-invested#infographic-text-version-uniqId1663780633203

This chart shows the annualized performance of a $10,000 investment made between January 2002 and January 2022. A fully invested investment returned 9.4% or $60,253. When the investor missed the10 best days, the return is 5.21% or $27,604. When the investor missed the 20 best days, the return is 2.51% or $16,414. Finally, when the investor missed the 30 best days, the return is 0.32% or $10,651. An added fact is that seven of the 10 best days occurred within 15 days of the 10 worst days.

2. Myth - The Fed funds rate changes and impacts on bonds and stock returns.

Common Question: “So, the Fed raises rates because the economy is strong enough to stand on its own and the stock market tanks? That doesn’t make sense?”

The expectations of the Fed’s actions, commitment, and plan to fight inflation are very important.  For example, if consumers, employers, and investors believe inflation is here to stay, then in many ways, it becomes a self-fulfilling prophecy. If we have confidence and believe the Fed is going to take strong action to fight inflation, then people’s behaviors (spending patterns) will fall in line with those expectations as well.

What does recent history tell us about stock market (S&P500) performance and rising interest rate environments?

Rising interest rates can and will cause short-term pain in the economy and sometimes the stock market. However, in the most recent rising rate environments the stock market has been up. From January 2000 to December 2021, five out of six years of rising interest rates the market did not drop.

As an investor, “...it is critical to remember that the stock market is about purchasing ownership in public companies. And the value of the ownership depends on the profits that the company expects to make. And we'll come back to this because it is a crucial concept. If you think in terms of the value of a company like Apple, Google, Facebook, you name it, Coca-Cola, etc., it is tied to the profits that they make. The question is, is the federal funds rate a primary variable that you can link directly to the profits of the company, and are they tied directly into what that interest rate does? And what the data seems to suggest is that it is quite likely that the fed fund rate does have some impact on the profits of a company, but there does not seem to be a primary connection there that you could say, if interest rates go up, profits go down.” ~Apollo Lupescu

3. Myth -Politics and the market (the President controls the markets)

Common question or comment: “If X president was in office, we would not be in this mess.”

The economy and the markets become an extension of investors’ emotions related to their personal politics. It is important to have personal values and political points of view; however, most investing decisions need to be data-driven. Being careful to differentiate between personal emotional biases and what the data tells us.

For example: Is there an obvious pattern that would tell you that having a Republican or a Democrat is better or worse for the markets? Is there evidence to suggest which political party fared better? When you look at the historical data, it is not clear that having one president, or another is better or worse for the markets.

“...In fact, President George W.Bush was extremely business-friendly, and cut taxes, specifically on investments. And yet during the eight years that he was in office, the market dropped. Should he be blamed for that? My answer is, absolutely not because 9-11 happened just as he came into office...” ~Apollo Lupescu

Listen to the podcast to hear how the stock market performed when Republicans had a unified government (controlled the White House, the Senate and Congress) versus when the Democrats had a unified government. 

Bonus:

What is the difference between Index Funds (Indexing) and the investment approach used by Dimensional Fund Advisors?

What emerged in the 1970s, With the advent of computers and more rigorous data was a different way to think about investing. And the idea back then was that, okay, well, let's look at these companies. There might not be any reason why not to hold them, so let's consider them.

But the idea was that instead of trying to understand the behavior of these companies and form an expectation about these companies by themselves, the idea was to create a different way of looking...And the idea is that as an investor, you want to understand not the stock itself, as much as the category to which it belongs. An idea that became known as asset-class investing. 

• Headline of the day! (See slide...)

https://www.jpmorgan.com/wealth-management/wealth-partners/insights/the-case-for-always-staying-invested#infographic-text-version-uniqId1663780633203

This chart shows the annualized performance of a $10,000 investment made between January 2002 and January 2022. A fully invested investment returned 9.4% or $60,253. When the investor missed the 10 best days, the return is 5.21% or $27,604. When the investor missed the 20 best days, the return is 2.51% or $16,414. Finally, when the investor missed the 30 best days, the return is 0.32% or $10,651. An added fact is that seven of the 10 best days occurred within 15 days of the 10 worst days.

• Non-Airline Company Life Insurance and Portability...
• The limits of standard Disability Insurance and how to manage those limits
• How to stay disciplined in this battle...bad stock market
• What’s the best path for young aspiring pilots?  Cargo, Passenger, Fractional, Military?

Meat of the Mission:

1. Why is the Fed raising rates such that we could go into a recession
   1. Why is inflation so dangerous?
   2. What role does psychology play in our economy, inflation, etc.?
      1. i. 1970, 1980’s...
   3. Why would we keep investing if we knew we were headed for a recession?
      1. Official dates of the Great Recession: December 2007 – June 2009
         1. S&P 500 Market returns
            1. January 1 – December 2009 – 26.5%
            2. 2010 – S&P 500....about 15%
2. What is Deep Risk versus Shallow Risk?  We are afraid of the wrong things. 

1. 1. William Bernstein - William J. Bernstein is an American financial theorist and neurologist.
      1. The Four Pillars of Investing
      2. If You Can
      3. Deep Risk
   2. Deep Risk:
      1. Deep Risk are inflation, deflation, confiscation, and devastation... “any useful discussion of portfolio design of necessity incorporates their probabilities, consequences, and costs of mitigation.”
         1. For example, investment discipline, taxes, inflation, disability, death, spending, income...
   3. Shallow Risk:
      1. “The Biggest Lie” Leading Edge video, news media. CNBC.  Short-term market performance.
         1. You will experience shallow risk every few years...
         2. This down market does not help but it is factored in. It’s part of investment, a cost, not a risk. Something to be planned for...
            1. Ongoing, below average returns would be a big concern.   In other words, what did you plan for? What are your market expectations?
            2. For example, March 2020 – down 30%-ish. 35% from the high in February.
         3. Do not allow shallow risk to become deep risk... Investor discipline

https://www.jpmorgan.com/wealth-management/wealth-partners/insights/the-case-for-always-staying-invested#infographic-text-version-uniqId1663780633203

This chart shows the 20-year annualized return by asset class (2001–2020). REITs returned 10%. EM equity returned 9.9%. Small cap returned 8.7%. High yield returned 8.2%. The S&P 500 returned 7.5%. A 60/40 portfolio returned 6.4%. A 40/60 portfolio returned 5.9%. DM equity returned 5%. Bonds returned 4.8%. Homes returned 3.7%. The average investor returned 2.9%. Inflation ran at 2.1%. Cash returned 1.4%. Finally, commodities returned -0.5%.

Full Show Notes 

Financial Q&A: Most common client questions lately:

1. How to get some sort of return/interest for short-term goals? 1-5 years?  

a. I-Bonds: Currently paying an annualized 9.62% for the next six months.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#:~:text=The%20composite%20rate%20for%20I,October%202022%20is%209.62%20percent.

b. Treasury Bills: Payingabout 2.8%-3.4% depending on the term.

https://ycharts.com/indicators/3_month_t_bill

https://ycharts.com/indicators/1_year_treasury_rate

c. Treasury Bonds:

https://ycharts.com/indicators/2_year_treasury_rate#:~:text=Basic%20Info&text=2%20Year%20Treasury%20Rate%20is%20at%203.42%25%2C%20compared%20to%203.37,long%20term%20average%20of%203.14%25.

2. Should I stop saving and investing since the market is tanking?  

a. No!  This is the best time to save and invest. Buy low! Stay invested, even when it’s difficult because the stock market tends to recover quietly. There is no magic signal or announcement that the stock markets are doing better.  

Special guest Darren Ellisor:

Darren Ellisor is a Captain at SouthwestAirlines with over 11,000 flying hours. He started flying for Southwest in 2008 after serving more than 10 years in the active-duty Air Force. Darren graduated from the US Air Force Academy in 1997. In the Air Force he flew multiple versions of the Boeing707, accumulating the majority of his time in the E-3 AWACS as an Instructor and Evaluator Pilot. In the E-3, he flew numerous Combat Support flights during Operation NOBLE EAGLE and during middle east deployments for Operation NORTHERN WATCH, Operation SOUTHERN WATCH, and counter-drug operations. During tours at Tinker AFB, OK and Geilenkirchen NATO Airbase, Germany, Darren worked as Squadron Chief of Standardization and Evaluation, as well as Squadron Chief of Flight Safety. He was named Pilot of the Year at Geilenkirchen in 2004.

On April 17, 2018, Darren was flying with Captain Tammie Jo Shults from LaGuardia to Dallas-Love on Southwest Airlines Flight 1380. Climbing through 32,500 feet, the number one engine exploded, causing shrapnel to damage much of the left wing and a passenger window to blow out. The aircraft banked more than 41 degrees to the left and experienced extreme aircraft vibration, hydraulic malfunctions, and an explosive decompression of the cabin. Darren, who was flying the aircraft at the time, recovered from the ensuing unusual attitude and started a descent. He worked alongside Captain Shults and their flight attendants Rachel Fernheimer, Kathryn Sandoval, and Seanique Mallory to safely make an emergency landing of the crippled jet at Philadelphia International airport—saving 148 lives. One passenger was unfortunately killed in the accident. In his free time, Darren has volunteered as a Cub Scout Pack Leader and as a Little League baseball coach. Darren and his wife, Jennifer, live in League City with their four children.