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Pilot Money Guys

Flight #15: Changing Your Domicile to Avoid State Taxes

Pilot Money Guys:

Changing Your Domicile to Avoid State Taxes!

Your domicile is defined as your permanent home where you pay your state income taxes.
 
For most people, your domicile is straightforward, however, for those with multiple residences domicile can be hard to establish. And maybe even a little tempting to lean toward the lower tax state. Our goal in this podcast is to help you understand how to have multiple homes and stay out of trouble with Uncle Sam!
 
Furthermore, the IRS says your domicile is based on your intent, which can be tricky to prove. A famous example is from a New York corporate executive moving to Texas. Even after getting a Texas driver's license and registering to vote there, the New York Division of Tax Appeals performed an audit and found the man to be liable for thousands of dollars in New York state income taxes. The man had to use the veterinary records of his dog in Texas to prove that he was intending to stay in Texas for the long haul!
 

Thank you for listening! If you’d like to have a conversation with us about tax domicile questions you may have, please email info@leadingedgeplanning.com or call 865-240-2292.

www.LeadingEdgePlanning.com

 

CHANGING DOMICILE CHECKLIST:
 

 

 

 

Podcast Transcription:

Rob: tip of the cap to you.

Welcome to the pilot money guys, podcast flight 15 already today. We're going to be talking about changing domiciles, changing where you live, and I'm your host. Rob Eklund, a wealth manager, financial planner, whatever you want to call. And with me, we kicked off Charlie. He's not, the godfather is not with us today.

Instead we have the professor CPA and certified financial planner. Kevin Gormley. Welcome Kevin. Yes. Thank

Kevin: you so much. It's great to be back. Oh, great. To be back. It's good

Rob: to have you here. The fans wanted more Kevin. They did. And of course we have the wonder boy, Ben Dickinson. Wonder man. You're a man cow bell.

What? I'm the cowbell? You're a man of many faces. That's for sure. That's true. Welcome. We're going to kick it off here with the little aviation news. Kevin, you were just talking about some movies. What do you got on the movie front for AVS?

Kevin: Yeah. So I'm a big movie fan and I was one of the people that did like top gun, so please don't judge me.

But so I was excited that the new movie was coming out. It's been delayed again until may of 2022. So say it. You can watch those trailers over and over again, but it's just not the same, but also two other things I learned is that jackass forever has also been delayed until the February of 22 and a mission impossible seven has been moved to September of next year.

Now the only other fun fact I'll tell you about jackass is I actually came across an article and those guys have spent like $38 million in medical costs. Oh,

Rob: are you serious? Yeah.

Kevin: Those people abused themselves, get paid for it. But they also have to pay all those medical bills. So anyway, wow.

That was just something that was Johnny Knox is from Knoxville

Rob: that's a Tennessee thing. Ben, were you ever thinking about. Oh, yeah.

Ben: W there's some videos out there of me and my friends doing some of our own our own stunts but I think one broken arm, then it really made a stop stop worrying about it.

And that's actually true. That's true, but that that's the other day, but but yeah I, my guess is why this is delayed is probably goes back to the Suez canal being blocked. That's my theories on supply

Rob: chain, hurricane Ida. Ranch and everything. Yeah. Excellent. Aviation wise, we got a pilot shortage that has been around and we knew it.

We'd known it's been coming for quite a while. And now they're just talking about, Hey, we just have 5,000 pilots taking early out from the airlines because of COVID. They, the companies were in dire straits. They offered pilots to get out a little early and 5,000 of us took it to include the gods.

Charlie and now, with air travel ramping back up and getting back to 2000, 19 levels or close to, we'll see what happens with the Delta Varian obviously. But, we have a bigger shortage now because 5,000 of us are gone. So it's interesting. No new shortage, new, old shortage here.

Ben: Yeah.

Yeah. That'd be interesting. A lot of they'll have to be bringing us some young folks in there,

Rob: training them up.

Kevin: Doing so Rob, let me ask you what, how much does it cost to become a pilot today and what are the different ways to become a pilot? That's because sometimes people will ask me.

Yeah, that sounds like a good good life, which it's not always, but it is hard to get into.

Rob: Yeah, no, that's a great question, Kevin. And it's a moving target back when I, way back when and the 2000 timeframe, when I got in, obviously I went to the military, so they paid. But then that's a significant cost buried by the by the taxpayers there.

As far as the commercial side of things, you bear a lot of the costs. You have to really, you're betting on yourself for a lot of years there and, you pay for all the training teacher ratings, your instrument ratings and whatnot. And then you have to accrue time and hopefully get hired by somebody to do that.

So they're paying for the gas and the plane. As you're accruing time once you've got the ratings, but the ratings are substantial now, though you've got a situation where airlines are seeing the shortage so that they've gone out and done different programs. So they're starting to take guys off the street and gals off the street and teach them right from the get go and start with some of the costs there.

They're providing the cost upfront for those pilots. So they're covering some of that. There's still a heavy burden, I think, on the individual. And you've got to bet on yourself for a long time before it pays off before you get to a major. For sure. So does that answer your question, Kevin?

Kevin: Yes, it does. And I think that's the interesting part to me is are there programs that are out there that if somebody wants to do it, that a company could take an equity position in that individual and say, we're gonna, we're gonna help pay for it.

Training and then you have to, give us three or four years or whatever the case may be.

Rob: Yeah. And it used to be that the military, I think, was producing more pots than in a, maybe the military has to ramp up their pilot production if you will. But I think right now with a lot of UAVs and unmanned aircraft out there, it's not going to be as organic as it used to be as not as seamless as hail was finding the KC 10 and.

Just move right over the airlines. So it'll be interesting how this all shakes out, but there'll definitely be different programs coming out. United has got one. I know Southwest has some things in the works and I'm sure Delta and American do as well. So we'll have to cover that on a different episode.

Maybe like what exactly are the avenues that the majors are looking at to bring guys on.

Ben: Yeah. And if you're a new pilot check out our last series, because we got some good info on some benefits stuff especially for some younger folks or people getting into it, because there's a a lot of nuances I've learned from

Rob: you all.

Absolutely. And then once you get to the majors you're gonna probably have enough money. You might have to give us a call. So that's true. That leads right perfectly into our next set. Which is exciting stuff. We're going to be talking about changing domiciles, which military folks, airline pilots, everyone deals with at some point in their lives, usually.

And but before that, this podcast is brought to you by leading edge financial planning, we're fiduciary fee, only advisors who strive to do what's right for you. What keeps you up at night? What questions do you have about retirement savings? Life insurance policies. Long-term care options. State planning or why we call Ben Kalba give us a jingle

it's up to you to get these facets of your life in order or not. If you decide to get a handle on these issues, we can help. Okay. Now for that, let's kick it off with domiciled change, Kevin, over to you.

Kevin: Yeah. First of all, as the Eagles wrote in the song hotel, California, you can check out any time, but you can never leave.

And that's a good quote to discuss the fact that when you move from one state to another or even when you're working in multiple states states love to get tax money from. And even though you've checked out of a state and you think you're gone, they may not think you're gone and they will track you and and they have the power to tax you.

That's really what this is all about. And this has come about for me, Rob, because a number of clients have said, Hey, I'm moving out of one of the high tax states, California. Illinois New Jersey, New York, and one of the things I need to be cognizant of as I moved to the promised land, which there are nine states out there that are a part of what I would call the tax promised land, the sunshine states, including Florida Texas, Tennessee.

And then there's a Alaska Rob, which you grew up in Nevada, South Dakota. Washington, Wyoming, and then New Hampshire up there on the east coast. So these are all no tax states. And so people can get really excited even to retire to one of these states and what we're finding, what we see online all the time is that even though you've checked out of a state and you've left the state continues to tax you and then you have to fight it.

And so that's really what this is all about.

Rob: That's tough too, Kevin. Cause if you get in a situation, as we're doing some of the readings here for the show prep, some of the states, can, you move from one state, they taxed you and you moved to the new state and they can tax you.

And it's not exactly clear. Who's going to win that battle. And I guess the federal government, in some cases, won't even step in and say, okay, you're going to, or the court system will step in and say, okay, California, you got the tax. Whoever Colorado, you got the taxes. Which was very interesting to me.

I thought that at some point, they'd say, okay, you're not going to be double taxed, but it's it's a tough situation. So what do you want to do in that case, Kevin, to make sure you're not getting double taxed. I might be getting ahead of myself.

Kevin: No, I think that's a good place to start. And there was a Supreme court case a few years ago where taxpayer said, Hey, this is not fair.

And the Supreme court voted, I think it was. I think it was five to four. I don't know how many circles Supreme court justices there are, but anyway, it was a okay good. There was a very narrow victory in favor of the taxpayer that you can not be taxed by more than one state. And so I've heard people say to me before, Hey, I can't be taxed by two states.

That's true, but you still have to file two tax returns and take a credit. And it costs money to file tax returns. That's not fun. And also if you brush up against one of the high tax states, Rob, let's say that you end up paying tax in California and you get a credit for Tennessee.

Guess what, there is no income tax in Tennessee. So that's really where the devil's in the details with this. And it's just something you want to be cognizant of. Now, I will say as well, that we've, since we live in Tennessee Ben and I we've had people that have been Tennessee clients who have moved to other states.

Such as Colorado. And that tax is not the only reason to leave a state obviously. But when people leave Tennessee, they say, what do I need to do? And I said not really much because the new state is going to be happy to have you and Tennessee doesn't get any income tax anyway.

So they're not going to be fighting over you. So that's one of the dynamics that, that happens.

Rob: Yeah. And like you mentioned, Hotel California lyrics, California is one of those states that has obviously high tax, New York, probably New Jersey, those types of states. They're going to want to hold on to you as much as they can.

Kevin: That's a, that's one of the most fascinating things in my reading is that, in California, you could have a domicile. And the word that we're going to get into in a second is domiciled versus. But if you're a domicile in California, that is, you have a place there, you return there and you don't live in the state of California even one day of the year and you work in another state and you live in another state.

You, you're actually physically out of the state, California will still tax you and they have a right to tax. And you will pay California tax or you can, fight them for years. So these rules are very complicated and convoluted but it can be a very painful experience in California and New York.

Ben and I were talking about this earlier when there's a lot of money on the line, they're obviously going to hire a lot of people to come out.

Ben: Yeah. Yeah, there's a bigger reward on the end of that that battle and Kevin, you were telling me it's the burden of proof is on the taxpayer.

These states will come after you, like you're guilty and you have to prove otherwise. And we'll get into later, maybe more details on some of the things to avoid doing that. But I just thought that was really crazy that they actually basically can say, you're, we're taking this money and good luck telling us otherwise,

Rob: pretty much I've heard, I heard one.

One Pandit was talking about states being like pit bull. He compared to the states to pit bulls and they just don't want to let go. And you gotta practice.

Kevin: I think that's, I think that's great, Rob, and yeah innocent until proven guilty does not apply. And, like one person recently said that's not fair.

And I said, no, it's not fair, but fairness. Doesn't have anything to do with it because taxing authorities have the ability to garnish wages and, if they rule in favor of their state and you lose the case, guess what. You're either going to have to pay or maybe flee the country and, fleeing the country.

I don't think there's a good financial strategy although some do.

Ben: Yeah, that's true. But I think they still, Hey California in New York, they may still come after you never.

Rob: Yeah,

Kevin: Ben, that's a, that's an excellent point. And so I got into the idea of, ex-pat and I followed some people on podcasts and YouTube.

And so one of the things I learned as an ex-pat, if you want to be an ex-pat and you live in California, is that you absolutely need to not just move to the foreign country. You need to move somewhere else. First, you actually need to change your domicile because there's people that are over in Costa Rica.

Europe and other places that California is still taxing them because the person moved directly from California to these other states and California argues that when you come back to the country, you're coming back to us. And so a lot of ex-pats I've said you actually have to move to a state like Texas establish established domicile, which I think we're ready to get into what domicile is, but established domiciles and then move overseas or California will continue to reach out to you across the world.

Rob: I love it. Love it. Let's get into it. What's what is the domiciles?

Kevin: I'm gonna, I'm going to try to explain this and then help me. You've done a lot of research on this as well, but domiciles, you really only have one domicile. So domiciles is the state, which you live and expect to return to, and that expect to return to that's intent, right?

And intent. Is very hard to know like what's your intention, Rob? I don't know your intention, . But I can, if I'm a taxing authority, I can tell you what I think your intention is. And that's where we come back to. You need to prove your intention. So at domiciles, you really only have one domicile.

That's the place that you. That you are, and you expect to return to, whereas you may have multiple residents what do we call someone with multiple residents, Rob,

Rob: a rich person. Snowbird

Kevin: or a snowbird? Yeah. Yeah. Snowbird is good. So yeah, if you have multiple residences there's let me find the verbiage here.

There's something that states will do, and they will try to say that you are a statutory, and they in any state in which an individual has a residence has a right to tax individuals, worldwide income. I always love that worldwide income. That sounds like you're making money all over the world.

But if you are in a state for a certain period of time and every state has their own rules, They can try to say that you are a statutory resident and they can say that your domicile is in their state. So although there's only one Dom domiciles more than one state can say you have a dominant style in their state and start tackling.

Domiciles is one thing. Residents, you may have multiple residents, but again, the issue is that multiple states will say that your domicile is in their state, then help me.

Ben: One, one thing that I was reading is that it basically, it does change to the definition of what domiciles is from different states.

And so maybe that's why California has maybe more strict rules, but I've got here two concepts that these states generally agree on. And the first one is that a domicile is a person's fixed permanent and principle home that they reside in. And then there's number two that they intend to return to or remain.

 I guess if you intend to be there for long term, and you also have a home there that you live in, even if you have multiple residences they can still say you intend to return back to this. So this is your home.

Rob: I think it's important for folks that are thinking about changing their domicile or moving that they think, there's some things that they can do.

To help make sure that their domiciles established in that new state, right? Yep. Yep. Absolutely. If you sell a house, if you move from, for our airline pilots who move from Oakland to Denver or Oakland to Dallas or wherever, if you're moving from California or wherever you sell the house that you have there, and you buy a new one, that's obviously going to go a long way towards establishing your domicile.

It gets a little trickier. If you keep that. And you have a house in Colorado and in, in California, then that's where it gets a little tougher, but they get, I even heard one example where a guy moving from New Jersey to Texas, he was a big hedge fund guy. And he, I think he had $400 million of income that year in a huge tax bill.

And New Jersey obviously didn't want that. And the judge. I think if if I heard this correctly, the judge actually used where his pet was, where his dog was to establish what was his domicile. It went that far as the, his intent was established because his pet was intact.

Ben: Yep. Yeah. Moving is not just enough.

We've we've seen and learned that you've got to, you've got to basically prove that you're in it for the long haul, many different ways. And we have a pretty robust checklist that we we got that it goes through kind of some of those things that you should go into.

And it's pretty funny how many different things they, they talk about in here? Are we ready to maybe jump in. I think so, guys. Perfect. All right. Let me let me pull this up because I think it's worth showing if you're on the, if you're on the YouTube check this out, but if not, you can check out our website.

We'll post this on here, but first of all, it talks about taking residents. Obviously owning a place in a different state and having your physical presence. So this is a, having six. At least six months in a day or the majority of your time in that new state. So if you do keep

Kevin: 183 days spend

Rob: 183

Ben: days, magic number was 365 divided by two plus one.

Perfect. Yeah, file for tax benefits. There's a, I guess you can declare that this is my domicile. I didn't know about that one. Do you any idea what that is? Is that some type of fancy form.

Kevin: No I don't have any idea. The big D I'm trying to figure out ways to remember that domicile is really the key.

It's not just residents. Declaration of domicile, that really sounds that your intent is to be in a new place. So I would definitely do that.

Ben: Yep. Yep. And like you said, it is the intent, that seems to be what really matters, but maybe it's like in the office where you just say, I declare domicidal Michael Scott, but yeah, I think maybe that's what that is.

I don't know.

Kevin: Michael Scott. Yeah.

Ben: Yeah, but this goes into things, things that you may not think about, your voter's registration, if you have a, if you're trying to establish residency in Texas, but, and you also have a home in California and you're registered to vote in California, it's not, that's not gonna fly just because you have that home.

Even if you, even, if you lived in Texas for the majority of the time, , you gotta have all of these little things in place. Your estate planning documents is a big one. Make sure that those are changed with the new addresses. Insurance a big, that's another big one that, that this goes into detail on your banking accounts your checks, making sure the checks, there's little things like that.

And this is all just building that evidence to prove that your intent is to not only just be there, but be there for the longterm and stay there and be able to prove that,

Rob: That, that estate planning one is huge too, because different, obviously the death taxes that we talked about in a previous episode, Go back and look at that.

And our I'm dead now. What series? That's great. Great series, I think. Yes. And

Kevin: No. Ben, let me make a comment here with all of this. Because people will say it's very obvious. I. Okay. It's very obvious. And I've heard that quite a bit. The problem is not that some of the people we're working with are not actually leaving a state.

The problem is there, there are some people, just a few, maybe in New York that will buy second homes elsewhere. And of course, where do you want to be domiciled? You want to be domiciled in the low tax state. And these auditors, again, we always think of these auditors as either. Devious not good people, but they are dealing with some people that actually are skirting tax loss.

So I think that's always something to remember. So they are going to look for ways to, to nail you. And this is the good get caught up in the bad sometimes. And the thing that I really like is that pilot pilots, like checking. And here's the cool thing where you can actually use your check, not a checklist knowledge to to just make sure you do all of these checklists

Rob: discipline.

Kevin: Yes. That's it?

Ben: Yeah. We'll give some access to this. . This goes as far as saying, even your memberships, join a club, just join a club in your new state charitable giving the chair give to charities in your state.

So this really goes into to a lot of detail. I won't go through all of it here, but it really goes through all the different details and it shows just to the extent of how you have to prove that you intend to not only live there but stay there and be there for the long haul.

And, yeah, it's not just about being there.

Kevin: Yeah. So what you just said is not just about 183 days. New York, actually, I saw some statistics online. They when greater than 50% of the cases against people, so greater than 50% of the time they win, they also have five years on average that these audits last, or I shouldn't say on average up to five years, these audits will.

So this is not just about money. It's also about annoyance and frustration and all these other issues. So one of the things that I think is extremely important is for you to is for you to have a a divorce date or a date that you are gonna be actually have left the state and come to a new state.

So picking a date of divorce and that's actually what they say in a number of the articles is that you need to treat the state like. Where you severed everything. So I even think, like people will say I'm going to buy another house in Tennessee. I've heard this recently and I'm going to move to Tennessee, but I'm going to keep my old place in my other state.

Again, it's very easy for that state to argue that's a second home in Tennessee or Florida or wherever. So I actually think selling your old home, although you don't have to do that, selling your old home might actually be a good one. Selling all real estate and then some of the other gotchas, you mentioned the dog, Rob social media is a very powerful tool when you're standing next to a New York building with your dog.

 And all your friends and you just got out of the cigar bar or whatever. And the auditor shows you a picture of yourself from your Facebook page. They are going to use cell phone records. They're going to use social media. So again just be careful with that. And if you really have left the area, you, and I would say that she shouldn't have problems, but multiple states right now,

Rob: Yeah.

And that's a a key point too. When you talk about, if you're there in the social media aspect, a state, I believe most states treat you as being there. If you're there for one second of the day. So for the pilots that bounce around, have their own airplanes and bounce around. If you're there for one second, you could be considered.

That could be one. 183 days as far as they're concerned. And so if you have credit card receipts and that kind of thing from that state, that's gonna be used against you for that. Potentially if you are an airline pilot, maybe using cash again, not trying to skirt the rules, but just making sure you've established that domiciled correctly.

Ben: Yeah, I wish it was as easy as, you could live in California and buy just like a apartment Tennessee and say that's where you live, but it's just. Yeah, they've got to figure it out and they know that people do that. And so they're looking out for people doing that and that's why it's, they've made it very difficult for you to do stuff like that.

So definitely something to be aware of when you're trying to trick them tricked system,

Rob: And I've heard there's now, with the social media and all the apps that are out there, that there are apps out there that you can actually buy to help you establish that you were in a state. For a certain amount of time.

So some, sometimes the states will be like you said you were there 185 days. We don't believe you, but there are apps, one it's called tax bird. It tracks your GPS location. And you can use that as, Hey, I was in this state for 190 days or whatever you were. Very interesting. Kind of mind blowing to me.

Yeah. That is

Kevin: As long as your app says that you've moved around a little bit and you didn't stay in one location for 183 days straight, Rob that is something that I read is that people have lost, caught court cases because they left their app and their phone. At one location and we're traveling all over the place.

Rob: So

Ben: God, it's amazing what these people people are doing. They're trying everything, but making it more difficult for those that are maybe if you're trying to do it the right way too. So

Kevin: for sure final thing I have Rob concerning. This whole issue is. I will tell you there's a, and you might not know this Rob there's 50 states in the U S and there's 50 different and there's 50 different taxing authorities and there's 50 different set of rules.

And even as a tax person when we have to look at different states it's even challenging for us. So you have to know the rules of an individual state and never asked soon. That, what the rules are going to be because they do change.

And sometimes like the 183 days, that's not the rule. So maybe seeking some, somebody that, that knows interstate tax and all the rules around tax in this case, I really think it's money well spent because if you wait until tax time and you've already been hit on the radar it might be too late.

Rob: Yeah. That's a good point. And if you're married, And you leave your, you may be moving to a new state and you leave your wife behind to fix things up or whatever. But of course the state's going to try the higher tax state is going to try to use that is, Hey, you're not really leaving you after wife here for crying out loud.

You didn't move. So just something to think about

Kevin: everybody laughs at that. Sorry.

Rob: Awesome. Awesome guys. We've got anything else?

Ben: I th I think this is this is good. We don't want to bore anybody too much about this stuff,

Rob: but yeah. Yeah. Something to think about for sure. Check out the checklist.

That'll be in the show notes, the link for sure. Leading edge planning.com. You can find it there as well. And that's it. We have reached our final destination on this special domiciles changing episode with the professor and Mr. Kelly. Thanks for joining us. I'll leave you with a couple of quotes by Robert Scheller famous.

Robert Schiller, the ability to focus attention on important things is a defining characteristic of intelligence. Think about that for a second. It amazes me. And the second one, it amazes me how people are often more willing to act based on little or no data than to use data. That is a challenge to assemble Robert Shiller brainiac.

That's it. That's all I've got. If you like what you heard, hit the subscribe button and let us know what you think by emailing me, robert@leadingedgeplanning.com or info@leadingedgeplanning.com. Give us good compliments bad suggestions, whatever you want to say to us, we're willing to hear you and make the show better.

So that's what we're here for. Remember, as Emerson said, the world makes way for those who know where they're going. So make so plan accordingly. We're out of here. Thanks Kevin. Thanks Ben.

 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this Podcast will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 09/07/2021 and are subject to change at any time due to the changes in market or economic conditions.

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Pilot Money Guys

The Pilot Money Guys: Winter Is Coming!

Pilot Money Guys: Winter is Coming!

I’ll admit I’m a sucker for survival reality shows, particularly shows about people living in Alaska and the Arctic. It’s always amazing to watch as spring starts, these folks must jump right into preparing for the next long winter. With months of darkness, freezing weather, and almost no food available to catch, these folks need to be proactive to have a chance of making it through a successful winter.

There’s a winter coming in our financial lives too. Indeed, there is a chill in the air! It’s time to start preparing now, so that we not only survive the next market crash but thrive. There are plenty of actions we can take now to not only protect us from losing everything, but take advantage of the next crash.

In this episode of The Pilot Money Guys podcast, we are going over how we go from reacting to acting, from surviving to thriving, from freezing and starving to sitting inside your cabin with a nice fire and a moose steak to boot.

Thank you for listening! If you’d like to have a conversation with us about your financial life, please reach out at info@leadingedgeplanning.com or calling 865-240-2292.

 

Podcast Transcription:

Rob: tip of the cap to you folks.

So welcome to the special edition only for our premium platinum plus VIP select club level members. Dang, we're calling it. Winter is coming now. I know your friends may be asking you, how do I become a premium platinum plus VIP select club level member? Well, it's. You simply download the podcast on iTunes, Spotify, and somewhere else.

I can't really remember your radio Stitcher, Stitcher, and you'll have access to over 13 podcasts of premium platinum plus VIP select club level content and go to YouTube, YouTube and YouTube. YouTube. Yeah, obviously I'm just kidding. All of our listeners, our premium platinum plus VIP select club level members.

So tell your friends and they can become one too. All right. Enough of that. I'm your host wealth manager, Rob. Backlund nice. Some people that I don't like very much call me rubber mallet, but today we have the godfather certified financial planner. Charlie Mattingly. Welcome Charlie, yes, sir. And of course our executive producer and vice-president of podcasting, Mr.

Cal bell, Ben Dickinson. Nice.

Ben: Good to be here. Thanks for the title. Upgrade.

Rob: You bet you you've earned it, buddy. Uh, we're going to start off with a joke of the day. Hold on all day, all you CPAs out there. Kevin, we apologize up front, but here it is. How do you know if your CPA is an extrovert? Because not a CPE because he looks at your shoes when he's talking to you.

That's courtesy of Chris brown.

Charlie: Nice. That's an outgoing CPA right there.

Rob: Fantastic. Let's get into some aviation news. Charlie.

Charlie: All right. Excellent. Excellent. So, uh, everybody loves top 10 lists. So we have one, we have what we found one on bit Luxe, travel.com, top 10 pilots of all time history. I know everybody's done. Yes. Are we on it? I mean, that's what everybody

Rob: wants to know.

Well, there's a guy named Charles on there. Yeah.

Charlie: Top 10 greatest all time. Great pilots in history, according to bit Luxe, travel.com now, um, let's see. I think we start with number one. What's your wants to they didn't number them. Yeah, that's gotta be, well, I'm going to start with number 10 then. All right. Ready? Number 10. Well, let me share my screen with you.

So. The folks on YouTube can, can kind of play along with us here. So here we go. Number 10, Robert Hoover, Robert, he were Bob Hoover's. Anybody know anything about Bob Hoover? Rob

Ben: I'm reading here. He's from Nashville, Tennessee,

Rob: a giant in the community.

Charlie: I've seen him in every air show I've ever been to. And he's always flown this.

Multi-engine like corporate area. And like, that's the weirdest thing ever. It's you know, it's, it's impressive. But I had no idea. He was like an air force fighter pilot during world war II. Oh,

Rob: I didn't know that. Oh man. Yeah. He's, he's incredible. I loved the little spiel there about him becoming a pow and then stealing a plane, a German plane and rescue, and you're flying it out of there.

That's wow. I probably have.

Charlie: Am I talking about the same guy that does the air shows you I'm talking about, right? Yeah. You've seen him before. Yeah. But man, this guys it's decorated. He's crazy. So, all right. That's number 10. Number nine, Eric Hartman. I've never heard of Eric Hartman. He became famous as a fighter pilot during world war II Hartman was a German fighter pilot who would eventually become known as the best in history.

He flew 1,404 combat missions down 352 enemy air. Including seven American fighters. Great. This

Rob: one I'm going to, I might have to throw in just because he's not there. And we already talked about a little bit in the pre-show prep was general Robin olds. Isn't on the list. I might throw him in

Charlie: there. Yep.

That's right. Yeah, we can replace the German. Yep. That's right. All right. Number seven general Chuck Yeager. Chuck Yeager retired us air force fighter pilot forties, 1947 came the first pilot in history to have traveled the speed of sound reaching one Mach 1.07, living to tell about it.

Rob: I flew him on a Southwest flight.

Really? No big deal. Absolutely. It was the landing. It was pretty good. I would say strong to quite strong. Wow. Chuck wouldn't have been as sacrament.

Charlie: Wow, too. Cool. All right. Uh, help me keep track here. Numbers. Chelsea Sully Sullenberger. No, I think we all know about Sally landed in a river somewhere and, and everybody

Rob: was safe and he, uh, went to the prestigious United States air force academy, air force academy as well.

Yeah.

Ben: They have an academy for air force,

Charlie: but, um, in the air force, but I'm not mistaken. I don't see that on here, but yeah, he'd lived. Okay. Yeah. I don't know. I mean, he's, I think it's a contemporary look. He did a good job. I think there's some recency bias going on there. Quite honestly. It's recent. We remember it.

So he's on the list. Otherwise, I don't know. Uh,

Ben: great nickname to Sally, Sally,

Charlie: people like that. That helps. All right. Noelle vine, this, he must be German. Oh, he's American.

Rob: I mean, we got, we got an Alaskan on here.

Charlie: American aviator introduced the airplane to Alaska. What

Rob: Alaskans have more airplanes per resident than any other state take that.

Wow, that's

Charlie: great. He was known for his resilience, which needed to be, uh, needed to establish a commercial airline of Frigidaire line. That's crazy. He reportedly, still flew and diagnosed with polio and even continue to fly after losing one of his eyes due to injury in 1940s. Wow. Crazy. Okay. Faster. That's the health exam.

Yeah, no kid. And that's it. You can fail FAA exam like that. Refer to. Our last podcast, right on disability. Yeah. All right. Uh, faster funnier general James Doolittle. Ah, we know about James Doolittle. Holy cow. He does definitely deservedly on the, on the list. Baron Manfred Von Rick, another,

Rob: another German,

Charlie: the German red, the red Baron, the red bear.

They named the pizza after him. Fair enough. Yeah, it must be good. Yup. Amelia Earhart. The ladies are representative. Awesome. Very, very high on the list was Amelia Earhart born in Kansas in 1897. She shook up flying in her twenties. No, she took it up. She didn't shake it up. We took it off. Well kind of shook it up.

I was going to say that's true. That's relevant. She shook

Rob: it up to fly across the Atlantic by

Charlie: herself. Right. That's incredible general Charles Lindbergh. All right. We know him as well. So thank you. Most well-known pilot in the world. Charles Lindbergh got his start in aviation as a parachutist and wing Walker.

Hmm. So Charles Lindbergh was not the first transplant flight ever, but it was the first solo flight of it's CAD. So that's pretty cool. He went to the, or it looks like he went to west point. He reached the rank of Bridget Brigadier general, like you said, Ben metal of honor in 1927, distinguished flying cross 1927 and the congressional golden.

  1. Number one, any guesses.

Ben: This is two people. It's kind of

Charlie: two people. Yeah. Wilbur and Orville Wright. Number one, I forgot to wait for the drum roll their most famous of all pilots known as flight pioneers. The Wright brothers invented, built and flew the world's first successful motorized airplane took off from kitty Hawk, December 17th, 19 three.

The brothers also invented aircraft controls, making fixed wing flights possible. Wow. Pretty cool. Yeah, that's

Rob: cool. Cool. We'll have to, maybe next time we'll come up with the top 10 all time. Great pilots in movies.

Charlie: Oh, pilots, that actors that played pilots?

Rob: Uh, no, just their characters. Oh, okay. You know, Ted striker.

Oh, that's right. Whose well, here in the pilot. Nice disregard. All right. Excellent. I like it. Anything else on the aviation news front?

Charlie: No, I think Ben's got something though. I, I got a shout out,

Ben: a shout out our own, our own COO Lisa and all the, uh, the, the Marine spouses out there. We had some, uh, she was, she was filling us in on some, some pretty, actually really awesome stuff about, uh, About what's going on in Afghanistan.

And she's a part of a Facebook group of Marine spouses that helped to try and bring some people, some, some translators home and, uh, really did some awesome work. She was sharing us some, some stories from there and some Facebook posts and it was really incredible. Yeah.

Charlie: I don't know. Do you guys get a chance to read those?

Absolutely. Yeah. , it's pretty amazing. What's been going on, you know, it's been pretty tragic, since mid August all hell broke loose in Afghanistan, we're going to avoid talking and placing blame right now and avoid politics right now because what's important is that we get people out right now.

Um, we can talk about the other stuff later. Now. What's cool about this situation. Is that the Marine there's a Marine Corps, a U S M C officer's spouse group on Facebook. And they put all that other stuff aside and they said, let's do something. And so these, these gals, and I'll say gals, because they are,, and, and most of them have Marine Corps husbands on the ground, either over in Afghanistan or, Helping out a state departments in various places.

So this has just been amazing. And to the crux of the story here, these spouses got on Facebook and they said, all right, we're going to coordinate to locate people in Qubole and we're going to get them the heck out of there. So, I mean, How does that happen? I mean, that's awesome. Awesome. Those two, those girls in that group, those spouses group, because let me just read a couple of real quick here.

And this is kind of, they're just coordinate and talking and communicating to people through WhatsApp, Facebook phone, whatever, anywhere in the world, anywhere in the country. One of them says, hello, I need some help. I need the help of some miracle workers. My husband's interpreters family is in or by the water canal, outside the Abbey.

At the Qubole airport. My husband has worked with the state department. I believe all the paperwork is complete. The family's name is, and this is the Afghany family. They're carrying white papers that say professional, the Taliban has been searching for them and they are desperate. I have phone numbers and copies of letters if needed.

So this just, there's just hundreds of these messages going on and on back and forth like, Hey, uh, there's one here. Update. Please help. We have a translators waiting at the north gate. He and his family are trying to get through. It's him, his wife and five children. Can anyone help? He has a passport. They are desperate.

The situation is worsening and we knew, you know, last Thursday was, was terrible. And, uh, but this was prior to that. So they're getting people out of there, you know, there's, you're not going to see this stuff on the news. And again, you're going to see bad stuff on the news. We need to hear that stuff too.

It's important, but this is just ladies making it happen and getting people out of there that helped the U S for the last 20 years. , and the allies. Yeah. The last one I read here is just a really cool meme of, uh, and I'm not going to share this on our screen just for, we don't want people's names up here and all that kind of stuff.

But, uh, one of the spouses, uh, posts a meme with a little baby saying yes, and, the spouse makes a comment on Facebook and says, holy hell. Y'all our guy is safe. Our guy is safe. The Marine spouse mafia has pulled off something, the state department and multiple other groups haven't been able to do that.

This group can move mountains and we could run the whole damn world. So I think that's really cool hats off to those Marine spouses to, to just step up and take the initiative and get it done. I mean, that's incredible. I just can't even say enough for those that took part in that and the difference that they made and even if it was one life they got out of there, one person, it was many more than that, but they save lives.

I mean, that's just. That is incredible.

Ben: Yeah, it really is. And not, not to downplay them, but just, there's just so many groups that were doing that too and helping out and trying to find people and just, just it really, the amount of there's a lot of power. We have a lot of power if we team up and, you know, we can get a lot done and it's, it's pretty inspiring.

It is

Rob: pretty cool. Just, just for a moment here, let's take a, take a second to remember the Marines that actually would. Fell during that Afghanistan, uh, you know, just, I guess we're recording this and August 30th, 2021 this last week. So we're going to take a moment of silence here in this room.

It's pretty, pretty extraordinary what our service men members have gone through. And thanks for sharing that, Charlie, and looking at it up cause it's, it's super important. So, absolutely. Thanks for that. We're going to move on now to our financial topic of the day, which is, you know, comes out of the game of Thrones.

Obviously winter is coming, a market downturn will have. We don't know when we don't know for how long, but we can say with confidence, which we don't say a whole lot, necessarily in this business, but we can say with certainty, I should say that a market downturn will happen. Charlie, what do you think?

Well, let's just, let's define this. Let's let's start putting some, uh, let's start filling in this picture a little bit. Let's define what is a correction, a recession, a depression. Um, what do you think? W what do you got on that? Yeah. So

Charlie: if you look at the headlines enough, and I look at the news, I love which enough, which I've kind of tapered off over the years because you see the same headlines over and over again.

So-and-so expert predicts, so-and-so expert predicted. So it's really a way to sell newspapers and, you know, those places have to sell commercials and ads. So they get on there and they talk about this, but it happens all the time. So what let's talk about a correction, you know, the correction is coming is going to be a headline.

Just go ahead and put it out there. Ben, put me on the headline somewhere. Predicting the next correction it's going to happen. Correction is defined as a 10% decline. Yeah. Or more. I would S I should say, so guess what, let me, let me share something here. Just with our YouTube folks. Maybe they can see this, but.

Corrections happen almost every single year. In fact, it's a really rare exception when they don't happen, because on average it happens every year. And let me just read this. This is from JP Morgan asset management. They update this every single year and I find it fascinating. So basically, despite if in fact, let me just correct.

Correct here every year we average 14.3% decline. Within the year. So it's intra year, not calendar year. It just so happens that we as human beings like to look from January. To December the marks, this talk market does not care about January to December. It happens anywhere in between all the time.

 . Let me read this slide real quick. Despite the average injury, your drop a 14.3% annual returns were positive 31 of the last 41 years. And I think this is data from 19, uh, 1980. Here. It is on the, on the slide here, 1980 to 2021.

 What do you all think about that?

Rob: Yeah, I, uh, just to kind of wrap that up a little bit, or, you know, the point here I'm going to steal that. Tony Robins, a little bit of his book on shakeable. He's got freedom fact number one on when we were, when we start talking about declines and it's on average corrections have occurred about once a year since the 19 hundreds.

So even if we go back farther once a year, since 1900, uh, uh, it's just, you know, we, we tend to look at the stock market. If you look at the graph of the stock market, we pull back and when you pull way back and you look at it from the a hundred thousand foot. It looks like everything's going up.

Everything's great. But if you zoom in, that's when you see it's the Rocky mountains out there, things are going up and down and sideways and, and, uh, and I think a lot of people, if you know that it's easier to weather the storms. Yeah,

Charlie: absolutely.

Ben: . Yeah. I remember looking back, um, just to the beginning of March of last year.

Yeah. I was looking at,, how could I not tell that,, COVID was going to happen and crashed the economy and then you look back and it's like down 7%, one day up 5% of the next day down, 6% up, 8% down, 10%, you know, it just goes up and down. But you know, back in my head, Well, all of a sudden on March 23rd, this sidebar had just crashed and that's not really, that's not exactly how it works over the course of a few days and maybe a week.

But yeah, like you said, you zoom in, you see that it's a lot harder to, uh, to really predict these. And when you kind of zoom out and look at it from a macro scale.

Rob: So I think it's important. This is kind of leading right into the next definition, which is a recession, right? So we have a correction decline of 10%.

And then Travis, basically every year yeah. Happens all the time. And then a recession, right. Is a little bit worse. Yeah. It could be a lot worse, I guess, but it's defined as at least six months or two quarters of a negative GDP gen generally identified as a falling GDP or two consecutive quarters of economic decline.

So that's a recession and those happen as well, often. And

Charlie: yet

Ben: do you got, was it was that last year? Was that even officially a recession?

Charlie: The shortest one on record, the shortest one to

record.

Rob: Okay. GDP decline. Yeah. Yeah,

Charlie: yeah. And so the interesting thing about recessions is most of the time, we don't know where in one until it's almost over and we certainly don't know we're out of it.

Way later. Yeah.

Rob: It's can't even be identified and tell you've had it and tell it's been going on for six months. Yep. You can't even technically consider it a recession. Yeah. So

Charlie: that's the fascinating thing about, what do we do? Well, it's like, you don't even know you're in one, the, the information is so delayed and oftentimes the, the economic board, I forget their official name.

They'll go back and they'll revise that they'll change. for several quarters afterwards as well. So, uh, it's just really hard to, to take action on those kinds of things. Cause, even if you know, you know, we're in a recession or there's going to be a recession, if you don't know the exact timing of that, it's not usable information.

Rob: Right. And those, those a recession happens on average since again, since 1900, every four years. But. It's not like clockwork. It's not like you can set your watch. Oh, four years from now. There's going to be a recession. You can't do that. It's a boom and bust cycle.

And it's changing all the time. Right now. We're in, I think we're in one of the longest expansion periods on record. Maybe not right now because of the COVID. But prior to that, yeah, it was one of the longest expansion periods on record in it and it changes. So we still know what's going to happen.

Charlie: Yeah, Robert, how are we successful going into, during and out of a recession or a correction or whatever it might be.

There are things that we can do. We don't have to sit on our hands, which is really nice to know. Cause I think that's what drives people crazy. I feel like I should do something. In fact, the action that people tend to take is sometimes destructive. We'll talk about that in a minute. We don't believe that you can time these things.

We don't believe you can. Timecode. I think we learned that I think most people would agree. Although at this moment, we're probably now starting to hear about people that, oh, they did know the top and the bottom, but last March, I didn't hear anybody proclaiming the bottom at a time. I was listening. I promise you I was listening.

So what happens, you know, what happened? During these times we get emotional. We get scared. We want to pull our money out. Right. That's the action that we want to take. We don't think that's the right action. We think that's very risky to pull all your money out of the market. The reason I think it's risky is because when do you get back?

And so I pulled the slot, you know, Rob you. And I did that. What lies ahead? And this is a, this is a great slot. Let me try to give the proper credit to people here. This is visual capitalist, the advisor edition, I think advisor dot visual capitalist, and they're really amazing information. So you guys, it was a

Rob: terrible YouTube or not, I don't think.

Charlie: Look at that, but you all tell me, when are you going to get back in the market in 2020? Was there a good time? I mean, April 3rd, global COVID surpasses 1 million, April 20th, oil prices go negative. We had protests, we had violence all through the summer. Did you all know in July 28th, Iran fires a mock at a mock us aircraft.

So I'm assuming they didn't know as mock aircraft carrier. I don't know. But you didn't hear about that? Um, record wildfires last August. Oh, by the way, there was just little thing that happened, early November. We'll called, uh, the election. Right? So you're going to get back in, or just prior to an election that was as divisive as last year.

Ben: I think, and like you said, this is like, when do you get back in? Okay. You may wait. Okay. I'm going to wait a month and see what, see how things are. And then you're like, oh gosh, oil prices go negative for the first time you wait another month. Oh, okay. Well now we're getting all these riots and next month I ran, you know, it's just every time there's always an excuse in a pretty good one to not get back in, actually.

Yeah. If I heard about that Iran thing, I'd be

Charlie: scared. That's right.

Rob: I know. Get to this in a second, but if you're getting out to you're missing out on buying when things are low, when stocks are low and, you know, just to think about it, a full cycle, if you will, of the economy lasts about 4.7 years, 3.2 on average.

Again, these are averages 3.2 years of growth. And then at 1.5 year recession. So that's kind of the cycle that doesn't happen exactly like that all the time. It's obviously the averages of it. Yeah. So, so you just don't know when things are going to happen. So if you're out, I mean the market can turn really quickly and it's erratic and, and the downturns can be deep.

And if you're out, the up, the upside can be very steep obviously. Is that, is it definitely, if you're looking at the YouTube, it's a V. Recovery. Yeah. The stock

Charlie: market. Yeah. Rob, those are great points, man. I love that. The statistic, we use that a lot and when we plan for people's retirement, they need income in a, in a few years, let's say, and my mom retired in 2020, so she's the perfect case study.

And she, we didn't have to sell anything because she was prepared for that. Like you just said about a year and a half is. You know, we double that. We triple that. We make sure that someone has secure income just prior and into retail so that they don't have to worry about the stock market going down.

 Your, your income is not going to be compromised. If we have a recession, it can't be, we have to plan for that. And we do. And, and what I have right now up on the screen, What it looks like in real life and you hear stories, you're going to hear stories and fly with people.

I got out in March. Uh, I don't know, one, whatever the top was. I got back in late March but most of the time, this is what happens., this person that you're seeing on the screen here and we'll talk to it here, they stayed in the market. Uh, it was tough. It was, it was like, uh, 12 round boxing match. You're getting pummeled all year long, basically. And Ben, like you mentioned earlier, if you look at the month by month return, it was nasty and it was nasty until about mid summer, late, late fall into the last two months of the year, knocked it out of the park.

This person is stuck with it because we went into , 2020 with a game plan. We knew when they were going to retire, we knew how much they needed to be safe. You know, nothing was compromised. Their retirement goals were intact. They stayed with it. They were, we were proactive when we were prepared for this, even though we didn't know what was gonna happen or when, so they were up, they finished that a conservative portfolio.

They were up pretty decent. So this is what it looks like. You stick with it and it's hard. It's not easy. You want to do something. There are other things to do. We're going to talk about and

Ben: onscreen, we're seeing the eight, 8.2. Yeah. Over over that time.

Charlie: Yeah, not quite a full year to December. And that's a dollar increase of about a hundred thousand bucks on the screen there.

And

Rob: just to, to clarify for again, for our podcast listeners, we're looking at a slide that shows, this is an investor who stuck with the market. And at the end of almost a year here, they were up 8.2.

Charlie: Yeah, but a hundred thousand bucks in dollar terms. So it's hard to believe that you could go through a year like that.

We just talked about all this stuff that happened, but yet we're up similar person, very similar timeframe, very similar asset level decided that they were going to get out and not just like, Hey, I'm not afraid, but I want to get out. And then that way, if it goes lower, I can reinvest back in and like talking about this stuff, that's really not.

Reasonable to do or execute for that matter because Ben, what you said earlier is it goes down one day, 10% up 10%. We had, we had multiple days like that last March, April, and maybe even into may. So getting a clear picture on that while you're in that battle is nearly impossible. Is this the day that a rebalance and buy, sell my cash and go back into, you know, I mean, it's just not clear ever during the.

So this person really never found the entry point., they exited probably right at the bottom March timeframe, and then just waiting for the time to get back in. You know, there is no time. There's never a great time to get back in. Finally, in November, December timeframe that the money goes back in, end up with a minus 4%, a dollar value down about $45,000.

So again, twos to investors. The the difference there is about 150,000, $145,000 swing in that one year between an investor a and investor B, that's just a case study. And when people tell me,, Hey, the market's up right now this year to date. I don't know what it is exactly, but it's up.

Hey, I want to get out right now because like you said, Rob, the storm is coming. The winter is coming and I would just want to preserve the gain that I have. Okay. That's a logical and reasonable. But then my next question is, well, when do you get back in? Do you stay out forever? When w what's your trigger?

What's your magic signal? There is none. And getting back in is the challenge, and that's where people lose. I'm okay with taking your 10% rate or, , return and running. But how do you get back in that's where people really lose, just like you're seeing on the screen that we're showing it's $150,000 difference in the two similar investors.

And I don't think you can ever get that back. You all my mind, am I wrong? How do you get it back?

Rob: Nope. You, you don't get that back. Yeah. And you're gonna, you're gonna suffer for that. Um, hopefully you learn from it and you don't make the same mistake when the next downturn comes, which we know is coming, obviously.

So those are the tale of two cities, right? Two people right there, 50,000. Yeah. And, uh, the percentages on those at 3.9% and 8.2% gain versus the loss of the 3.9%. And that's, that is why even the, for the folks. Um, now again, we're looking at a slide where the guy got out or a guy or gal got out at the bottom of the market and then tried to get back in.

It's a certain point. And there it's a perfect example of, they just, they sold when the stocks were low and they bought when stocks were high and the exact opposite way. What do you want to do? And it just goes to, the, the whole thought process. Nobody can consistently predict whether the market will rise or fall. And even for the folks that the time to perfectly say you timed it perfectly and you got out right before COVID. The chances of you timing it perfectly to get back in are slim to none, right?

Charlie: Yeah, you're right. And that's a great transition Rob into, well, what, what does this look like in real life?

When I get out of the market, when the news headline is scary and I get it back in when the coast is clear, which those two things we, we don't know, so what does that look like? Well, I can tell you. To get out of the market when things are scary means you go in your account and you sell apple, Amazon,, you name at and T whatever company, mutual fund, I'm talking to mutual funds, ETFs.

If you own individual stocks, you got to sell that stuff and you're locking in losses when you sell it. You're, you know, people say I'm going to be more conservative when things get bad. Well, if you wait until things get bad, And then you become more conservative. That means you're selling and taking a permanent loss and people say, no, it's not permanent because it's going to continue to go down.

Then I re-invest my cash. Well, no, it's going to be stuck. Never happens the way we think it's going to, uh, for example, 2020. So the average investor does very poorly. This is the average of Beck equity investor, about 3% from the 20 year, uh, period of 2001 to 2006. The average equity investor, according to this JP Morgan, we're sharing here.

Think the information comes from Dalbar. So now there's a debate. Some of this information is debatable. You know, maybe they didn't take into consideration costs of investing, et cetera, et cetera. But no, and the last, the point is clear that by becoming more conservative during scary times, we sell low. If we get back in the market, we're buying.

Later on down the road. So that's what it looks like in real life, but we, the language we use is sounds so much better. I'm going to get out, you know, I'm going to get back in later. That sounds pretty cool. Selling at a loss sounds terrible. And that's, that's really the reality. So,

Rob: and if you think you somehow are one with the market, just realize that some of the smartest hedge fund managers in the world.

Have tried to do this and failed and they continue to fail again. No one has met anyone who can consistently time the market. No one has met anyone. Who's met anyone who can consistently time the market. And some of these people, these hedge fund managers, who've got, you know, Harvard degrees, tons of letters behind their name, all access to all kinds of information that you and I will never dream of having have failed to time the market.

. So how do we prepare? What do we do? Obviously we're pilots. So I talk about that. We always talk about simulating it chair, flying it. Be ready. We know winter's coming. We know a recession is coming. We know a corrections. So we need to be ready for that emotionally because of, uh, you know, since caveman days, our emotional response to those kinds of fight or flight, uh, scenarios is usually wrong when it comes to investing.

But if you're ready for it, then you can be, you take the emotion out of it and get it. Charlie, what are some of these strategies that we use so that we can do well, even in the downturn, right? Yeah.

Charlie: I'm sorry to keep interrupting there, but I'm just dying to jump in and get out of here because there's a lot of stuff we can do.

And that's the, that's the misconception is like you just sit on your hands and put up with it. Well, And people say, are you passive? I'm like, well, what does that mean? I hate that word because we're proactive. We're going to plan in, in the flying world, we're going to chair fly the heck out of this. , that's an air force thing maybe I guess, but, um, we're going to practice, we're going to run simulators. We're gonna, talk about it. We're going to study it with our clients, and we're going to show them and, uh, what it's going to look like when this does happen, and I think.

It is like flying. There's some mental preparation. There's some value to that mental preparation, because cause Rob, you said emotionally, it's very difficult once it happens. And Ben, before we got on, you're talking about, Hey, people that have poor balance sheets, they suffer a lot because the stress is multiplied.

If you're a person that's got cash paid off your debt, you're saving a recession is a little bump in the road. Maybe stress. But you got you're buttoned up. You're good to go. In fact, I showed you all the texts. Uh, a friend of mine always has way too much cash because he's afraid to do anything with it all the time.

So I texted him last, March 20, 20. He said, Jason, put your money to work now it's mid-March and it was still nasty. And he said, no way, no way. I said, look, you got cash. There is no recession. If you've got a strong balance sheet, get your money to work. Now's the time. You make money, but it's hard, really hard to do.

So what does that send me a simulator look like? And I've got something on the screen here, but I'll also talk to it. Uh, but basically we simulate people's lives. What's important to you. What do you want to do? What does retirement look like? What's your vision. Then we put price tags to all that stuff.

You know, it's like, ah, this seems like a, uh, an exercise and yeah. Wasting my time, whatever, but it's important to know what you want to do in retirement. It's important to know how much that's going to cost. Then like the simulator we're going to fail an engine or two. What if now you, we have a bad stock market.

What if we have a bad stock market when you're 50? Ah, well, not a big deal. You know, we can survive. We can be fine. What if you have one, when you retire from the airlines at 65 current retirement age, the year you retire, like in 2008, when, when the retirement age was. We had a lot of pilots retiring right into 2008 at age 60.

I just like to be those, those people. So that's the, one of the bad timing scenarios that we run because is one of, I'm not going to say the worst case scenario because of course we could have Armageddon and blah-blah-blah and all that stuff, but it's a tough one and it's a unlucky scenario. So we run that scenario and we go, okay.

Here's what you need to do right now to be prepared for that terrible scenario. Again, the point here is that a recession tomorrow for most of us that are in our accumulating years is not the worst case scenario. The one that you really need to watch out for is the year that you retire. If we have a recession and the stock market tanks, what are you going to do?

And are you prepared? And there's a lot of things that you can do. And, and again, running those scenarios brings a lot of those solutions to the store. Ben, what do you think?

Ben: Yeah, when I think about, just preparing one thing that, comes to my mind is.

Is making sure you have some cash on hand, you have your emergency fund, you have the basics taken care of, I guess you'd say. You can,, avoid , having to sell your investments in a downturn to, to be prepared.

And a lot of that is what we were talking about. You know, we simulate this and we say, Hey, w what, what kind of income do you need in return? We're going to make sure you have that, that way. If, if something even worst case scenario, instead of pulling from your investments that are down, you're going to pull from other areas.

Maybe it's a pension, maybe it's an annuity. Maybe it's bonds, you'll pull from other areas and, that's how we can be proactive, and then maybe when they're Haddish coming, you're going to be like, well, why aren't we selling our stocks? Stocks are falling.

Yeah. Well it's because guess what, actually, you're, you're, you're covered as far as your income. You don't, if you don't need the money from those stocks, Why are you worried? We have the statistics on how often the, or how long these recessions last as, as we've talked about already. But, at least for having a few years of income or, you know, uh, taken care of, and then you don't have to worry as much, um, you know, about the recession, don't worry about

Rob: it. That a statistic again, is a recession lasts, usually lasts about 15 months and the average expansion is 48 months.

So, um, the great recession, even in 2008, 2009 lasted for 18 months. And that was the longest period of economic decline since world war II. Wow. So it doesn't happen a whole lot. And I think it's just so important. Like you're alluding to Ben that you have those different assets that you can pull from,

Ben: and in that time, just that time from really quick, uh, if we, we saw it last year, I mean, if you were 100% equities, even if you're down, you know, you got, you went down, maybe 30%, you were recovered by August.

So even if you were 100% stock, you were recovered, that's pretty amazing. That's the S and P 500, of course we're looking at, but that's pretty amazing. And that's so fast.

 

 

Charlie: . . .

A lot of people, you know, Rob, I know you're doing it now, but when I was flying, people would say, man, this next downturn is going to be terrible. This next recession, terrible. I'm like, well, maybe you shouldn't buy the new truck and maybe you should save some cash. I'm stepping off to Florida. Hey, that's too close to home.

I'm hitting too close to home now. But yeah, you know, do the basics and have the basic discipline and the recession comes along. It's a natural part of the economy. It sounds scary. It sounds like somebody screwed something up when we have a recession, but it's a natural part of the economy. , the last thing I'll say before we let you all wrap it up is , we're, we're proactive.

We do all the planning. We think about it. We talk about it, we prepare for it. We know what's going to happen. And then once it happens, it's still difficult, but at least we know what decisions we've talked about in my head. Now, what about when it happens? Do we just sit there on our hands and do nothing because we're not going to sell, w we'd rather not sell unless the client just can't stand it.

And that means we didn't do a good job of evaluating risk going into that, but what are, what can we do once all hell breaks, loose, such as last March. There's lots of things. And the most profitable. One of the most profitable thing to do is take that opportunity. If you're an equity investor, especially.

Is to rebalance with an S equity asset classes. You know, like let's say international does poorly us does great. Well, you're going to sell some over us and you're going to buy some international. , . The other one is, think about taxes, able to look for tax loss, harvesting opportunities.

And,, there are some rules on that and some tax rules on that you got to follow, but there's a great opportunity there to save taxes. , especially if you've got another capital gain that's fairly large and you're trying to exit that business. You could save money on taxes by looking at a tax loss, harvesting, you know, at those opportunities.

And they'll show up there and in, in the Tom's like last March, and then finally, it's a great time, Ben, I think you mentioned it earlier to reassess. Hi Emma. There am I in the right risk bucket? , so those are some things that you can do during,, the, the downturn instead of just sitting on your hands. However, most of the work should be done prior to that. And the last thing I'll say, I promise this is really the last thing I'll say is that if you're nervous about a recession, uh, think about the worst case scenario, which was going to happen when you retire, you can save a little more and you can negate the effects of that.

We've seen it mathematically. You're not emotionally. Now it's still gonna be difficult. If you're nervous about that situation, we can run the numbers. We can show you exactly how to negate that scenario and how to keep it from affecting your retirement goals in the, and that's very doable, you know, so that, that's what we recommend is preparing for that way in advance.

So now I'm really done

Rob: abs, uh, it's great stuff, Charlie. And I just to kind of give people some examples of that asset allocation for, you know, for the lay person, I guess. You're rebalancing. All you do is you have equities or stocks and bonds, right. 70, 30, that mix, whatever it is. And when a downturn happens, your stocks are going to fall way low, maybe the 50%, 60%, whatever it is.

And it's outside of that 70, 30 mix that you want. So then what are you going to do? Well, you're going to buy more stocks. You're going to sell bonds. You're going to buy more stocks and you're automatically buying when it's low and selling. When it's high. That's a great part of asset allocation and tax loss harvesting for you.

For those of you who don't know it, it's basically when you buy a stock and it goes down, you're basically capturing that loss and then buying something else that is similar to it. So you still have a good stock in there, but it is capturing that loss on your tax

Charlie: advantages.

Yeah. You nailed it. . I did fail to mention Roth conversions. We did a lot of Roth conversions last March as an opportunity. We were doing some anyway. And all of a sudden, if your account balance goes down or that value of that investments goes down, you can subsequently convert that and pay less taxes, especially if you were going to do that anyway.

So again, a lot of moving parts on a couple of those things, and don't take that as advice because. No, you know, we're talking very general strategies here. And again, there's a lot of tax laws and things that you need to think about, but there are a lot of things to do is the point of the discussion here.

A lot of things to do a lot of opportunities when, when things get scary.

Rob: Yep. Again, rebalance, if you can invest through the downturn dollar cost averaging monthly investing, tax loss, harvesting Roth conversions. Have solid financial principles to stick to those avoid bad debt, build your savings, invest for the longterm.

That's what we're talking about.

Ben: Okay. , quick thing from the,, young pilots out there, , Hey, a young person you should be happy.

There's a recession to some degree because you can buy those. You can buy ownership in companies. And we joked about it about me. Hey Ben, you should be pumped right now. You go by it by some of these come by and you're like, apple, go buy some apple. Like you just got a 20% discount. Yeah. Okay. You know, and obviously no one wants a recession, but if you're a young person take advantage of those opportunities, if you see the market is down, I know it's going to be very tough because it was tough for me.

I looked at it, you know, you're watching the news, everything's going to hell in a hand basket, but you know, it's. It's a great time. Great time to take advantage of it.

Charlie: Good

Rob: point. Yeah. And remember if the downturn does appear, it's only a matter of time before things will start looking up again.

Charlie: Yep. And just for those people on YouTube right now, that is not Benz underoos on his microphone.

No, just want to clarify. Let's open we'd we'd we'd clear that yeah. We have a problem with our microphones. You know, we need to have we're too cheap to buy those little furry things. Those are not bands underoos on his microphone. That

Rob: is a,

Charlie: what is that? Ben,

Ben: allegedly not my underoos look. I, I had to find something to cover it up full disclosure, and apparently it helps with the audio quality

Rob: when you sound great professional.

Yeah. I'm going to get so much on the ruse.

Ah, just kidding. Just kidding. Okay. Anything else? At least? Yes. Anyway. Right last a couple of quotes. We'll leave you with these two are from burden molecule, the author of a random walk down wall street. Very smart guy. The majority of investors failed to take full advantage of the incredible power of compounding the multiplying power of growth times growth.

And the second one is it is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get rich quick speculative binges. It is an obvious lesson, but one frequently ignored Burton Malkiel. There that's it. Folks we've arrived at our final destination.

Let us be the first to welcome you to the end of flight 14. Thank you for joining us here at the pilot money guys podcast. If you have any questions, shoot us an email. robert@leadingedgeplanning.com. If you like what you heard or even if you didn't hit that subscribe button, how about that? So we can reach more people and out.

Remember the world makes way for those who know where they're going. So plan accordingly.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this Podcast will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 09/07/2021 and are subject to change at any time due to the changes in market or economic conditions.