What happens when emotions mix with investments? In this episode, we dive into the intersection of politics, markets, and personal finance. John and Tommy share insights on how to design a portfolio that minimizes unknowns, regardless of political changes. You’ll learn why staying the course is crucial—even when market predictions seem tempting—and how a solid, long-term strategy can help you avoid emotional pitfalls.
Listen in to hear how to balance living in the moment while planning for the future. We explore the importance of controlling what you can and why patience pays off in investing. This episode offers practical strategies to help you make informed decisions, avoid reactionary moves, and maintain focus on long-term growth.
Listen to the full episode here:
What you will learn:
- Why we don’t try to time the market. (3:55)
- How we design a plan to eliminate as many unknowns as possible. (7:35)
- The importance of believing in the future. (11:30)
- Why we can't let our emotions dictate our investment strategies. (16:05)
- The importance of having a plan you can stick with. (19:45)
- Why we should only focus on what we can control. (28:45)
- Why investing is a long-term game. (33:35)
- How to balance living life and saving money. (40:45)
Ideas worth sharing:
- “We never try to time the market because the market moves in mysterious ways. Regardless of what political party is in power, the American economy continues to be dynamic and continues to power ahead.” - Mason & Associates
- “Past performance is not a guarantee of future results in investing.” - Mason & Associates
- “We don’t want our political beliefs to influence our investment decisions.” - Mason & Associates
Resources from this episode:
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
John Mason: Welcome to the Federal Employee Financial Planning Podcast. I'm John Mason, President and Certified Financial Planner at Mason & Associates. And today with me—Tommy Blackburn, Certified Financial Planner, CPA, and Personal Financial Specialist. And basically, Tommy, I think we're co-presidents at Mason & Associates.
So thanks for being with us on another episode of the Federal Employee Financial Planning Podcast.
Tommy Blackburn: Well, thank you, sir. It's always fun. Love doing this podcast with you. Love our adventure with the firm over time together. I appreciate the kind words and looking forward to having another episode with you.
John Mason: Well, this episode we're recording on October 23rd. It should release on October 28th. And this is a special episode because we are talking the election. We're talking politics. We're talking a lot of things here. So we assume that we're going to get a little more attention on this episode than most.
So a couple of things. Number one. Future episodes coming. Two great episodes. One with James Anderson from CapCenter. Number two, we have an episode with Rachel Meredith from Banks Mountain Financial. Those should be releasing in November, December time frame, so you don't want to miss those.
Call to action. So we are financial planners first, and we do this second, which means we primarily take care of our clients and we do content creation. Second, we are accepting new clients. We'd be honored if we'd have a shot at earning your business. If you like what we do, if you like our style, if you like what we specialize with federal employees, we work with folks 55 or older.
Typically, federal employees enter near retirement with $1 million or more of investible assets. Step one of the process is scheduling an introductory phone call with Mason & Associates. It'll be one of the five lead advisors here. You can do that two ways. Number one, you can call 757-223-9898. That's 757-223-9898, and one of our rockstar team members will help you schedule that introductory call.
Alternatively, masonllc.net, right on the homepage, you'll see a hyperlink to request an intro phone call, 15 to 30 minutes, it can be phone call, it can be Zoom, and there's absolutely no fee to you. The goal, can we benefit you, can you benefit us, and do we get along? That's the first step in the process.
We're accepting new clients. If you'd like to get that process started, remember phone call or website. And oh, by the way, if you'd like to start the process intro calls start now, but the more in-depth meetings would start in January of 2025 and our onboarding process typically takes about two or three months from start to close.
So depending how motivated you are, it may be time to go ahead and request that introductory phone call. With that being said, let's jump right into the content, Tommy. We're talking election. Election Day is November 5th of this year. This episode is releasing right at a week in advance of the election.
Where are we going today? Where should we start? What do you want to talk about first?
Tommy Blackburn: I was just thinking that we have another one of the members of the firm that's often on the podcast. Founder Mike Mason is probably good. He's pretty good about keeping it, towing a neutral line and trying to keep some of his political thoughts to himself, but probably best he's not on this episode because they probably would slip through and we'd have a little bit more colorful commentary.
But what's on our mind? We're readjusting portfolios based upon what we think the outcome is going to—No, we're not doing any of that. I was like, “Where are you going?”
John Mason: We're timing the market. All of our clients are in cash.
Tommy Blackburn: Yeah, no, none of that. We're honestly—we're not that concerned from a financial planning and an investment management perspective.
And we'll go into that, and it's primarily because this is a long term focus. As John just said, we're not trying to time the market, we're not trying to guess. The market moves in mysterious ways. In the short term, it is a voting machine, meaning it's a lot of speculation in people's opinion. And in the long term, it's a weighing machine, meaning it's actual results.
And when we look out over time, history shows that regardless of what political party is in power, the American economy continues to be dynamic, continues to power ahead. And as John and I were talking before this, as long as capitalism still exists, now I may get watered down here and there, depending upon what's happening, and we can have discussions around that, but ultimately, as long as companies still exist to make money, we still have a capitalistic society.
The system continues to exist, and we believe that long term, and maybe we'll shed some light around what we mean when we say long term, it's gonna work. Investments, companies are gonna continue to try to provide returns, make money for their shareholders.
John Mason: Thank you, Tommy. And maybe this is a good time for us to do a disclaimer that past performance isn't a guarantee of future results.
If we share performance numbers today, folks, it's just to talk in general about where the market has been, where it could be in the future. We're not making any bets. We're not making any prognostications, if that's even a word. And we're just trying to share some history with you. So past performance is not a guarantee of future results.
These are going to be rounded numbers, and none of this can be construed as financial planning, investment planning, tax, legal, or any other advice. That has to come from a dedicated relationship with us. So Tommy, you hit on a lot of good things. One is that markets move in mysterious ways, and some of them are mysterious to even us, and some of them are maybe only mysterious to the untrained eye, and I'll give two examples.
I, number one, was confident that when interest rates rose—because we all knew that was going to happen—I was confident. I was like, interest rates are going to rise and my home value is going to plummet. Because now all of a sudden people aren't going to be able to afford homes in this market with interest rates at 5%, 6%, 8%.
And what did we see? Everybody said, I think everybody was saying, if mortgage rates go up, home values are going to come down. And we saw what? Just the opposite. Up and up. They went up together. So not only did the house get more expensive because of interest rates, because of the shortage of inventory and various other reasons, the market moved in mysterious ways.
That was a surprise. How about this? We've lowered the Federal Reserve short-term rates, and mortgage rates haven't really changed. We thought all of those things were going to be, like, directly linked. Turns out they're not. And how about number three? The day Apple or any other company releases a beautiful new product, all of a sudden their stock price drops.
And it's like, well, isn't this a good day? We just got a new product. Isn't this awesome? And we learned in college that typically the market has already priced in the release of the next iPhone. So it's not shocking to us when we see the stock price drop. We're not saying markets are efficient, Tommy.
Like, maybe they're a little efficient, but they're not completely efficient. There are some opportunities where maybe an active management philosophy could win, or there's opportunities where you can see that things aren't efficient. But largely, the market is pricing in a lot of stuff before we as the consumer, or even financial planners, are aware of it.
Tommy Blackburn: Yeah, absolutely. And we look at things, we try to control what we can control and look at things from a probabilistic standpoint. And what we know is when we design a financial plan with a cash flow strategy and a tax strategy, which we can largely control, we can then align a portfolio to eliminate as many of the unknowns as we possibly can, which is investing.
We can't eliminate everything. But by not being so active and taking a long-term perspective, positioning a portfolio to match your plan long term, we know that it's in our favor. The history will show us it's in our favor at that point. And now let's go focus on everything else. And even on the portfolio, what we do focus on is do we have chances to harvest losses in those taxable accounts or maybe even harvest gains?
That's all tax planning. Is it a good time to rebalance maybe as the markets move around of selling something high and buying something low in the portfolio, working it that way? Those are things we like to focus on. But as far as speculation as to what's going to happen day to day, we think that's a very dangerous area to play and one that history has littered with failure if you try to play that game.
John Mason: The more active you are—you're trying to buy and sell, whether you're timing the market or trend following or have a magic bullet that is working for you over time—you always run the risk that you have to get the exit point and the entry point correct for that trade to work. And the market just moves so fast.
So Tommy, we've always heard sell and may go away. And right before we hit the record button, I think we saw that the S&P 500 is up 15% since April 30 or May 1st. So if we sold in May and go away, at what point do you get back in? And really this year it looks like you should have sold at the end of quarter one and got back in May 1st.
That seems like that would have been a better opportunity for you. So we can't just rely on some of these things. And it seems like over time, it doesn't really matter who's in office. The market tends to go up regardless. And I think this is an important time for us to take a pause. And the audience is probably already gathering that it's you and I have our opinions on who's going to win the election.
You and I have our thoughts on who would be better for the country. That doesn't really matter right now for this podcast, but let's say that a client calls in tomorrow and they say, “Tommy, the whole world's going to end. One of them is going to win and I need to get out.” We know that we don't really want to have our political beliefs influence our investment decisions, but our political beliefs do influence our lives, which then in turn influences our emotions, which influences our investments.
So, pretending like this doesn't happen is not fair. So, if you had a client that calls in tomorrow and says, “I'm convinced I know who's going to win the election, the whole world's ending,” what are you going to say to them?
Tommy Blackburn: Probably acknowledge their concern. That yes, I am probably share their same concern that you do.
The media is certainly working hard to get us all worked up. So let's put that into, let's just remember that there's a lot of entertainment media, and they're designed to play on your emotions and get you worked up. So that's part of what's happening here. And that while, yes, we have the same concern, ultimately, if it's all gonna end, the last thing, like having cash in the bank, any of it's not gonna be helpful to you.
If the entire system goes poof, we've got some really, really big issues. So, if we can acknowledge that we don't believe the entire system is going to end, and that it's more prudent to stay the course, or stay investing, believe in the system, then all the data tells us to stay the course and focus on what we can as well as, let's dance to the music that's being played.
Yes, I agree, I may be saddened or distraught by the outcome, but at the end of the day, let's look for the opportunities that are presented. Once we know the rules, once we know the situation, instead of all the speculation that we could be wrong multiple times, if we try to speculate, let's dance to the music that's being played and we have in front of us.
And a lot of times that's going to play out because the markets are going to move. They're adjusting already. Like in the way that we invest, it's basically built in that it's already adjusting for what it sees coming. And it's definitely going to adjust as things become clear. So it's really already designed to make those moves without you really having to do anything extra other than be set up correctly in the beginning so that you're already got your defense.
You've already got your growth. It's all already in place. Things that could change usually it’s gonna be like tax policy, and we're gonna be very active and focused on the changes that could be coming and not trying to move too quickly, because there's still a lot of uncertainty as to what could come. We plan with the rules we have and we know, and as soon as things become clear, that's where we'll begin making a lot of moves if and when appropriate.
But ultimately, we've got to believe in the future, and if we believe in the future, then let's make the most of life gives you lemons, make lemonade.
John Mason: So much good stuff. My favorite part of what you said is that we hear you. We hear you. We understand that you have a concern. Maybe we have the same concern, but the last thing we're going to do when a client calls in and say, “Yeah, Tommy, you shouldn't be worried about that.”
We're not going to show it all over people. We're not going to tell them how they should feel or what they should be doing, but we can acknowledge the concern. We can hear the concern. We can remind them. We're going to share some numbers here in a second of why it makes sense to be invested for the longterm.
But acknowledge the concerns, remind clients that we have a financial plan in place that's designed to weather the storm. This is why we have bonds. This is why we have cash. This is why we have an emergency fund. And oh, by the way, regardless of capitalism, nobody's talking about ending capitalism entirely.
So let's say capitalism, the market goes down for a little bit. Nobody's talking about completely eliminating social security and completely eliminating the first pension, completely eliminating your other income sources. So, as a federal employee listening to this podcast, you have three income streams in retirement.
What you've saved—your federal pension and social security. And at the end of the day, if the market takes a dip, you still have the other two. If we want to be concerned for anybody, we want to be concerned for the people that don't have the first pension. Like those are the folks who truly, you know, we're not saying run for the hills, but like at the end of the day, if there's somebody to be concerned, it's probably what the one that doesn't have a defined benefit pension and our 14 years of doing this.
And me 14 years here, Tommy, 14 years in total experience. It makes sense to be invested for the longterm. The pension really, really matters. And, oh, by the way, you have something that nobody else has, but you've also saved more than most people have as well. So you also have that distinct advantage.
So we hear you. We understand your concern. Oh, by the way, we can stress test the portfolio inside of our financial planning software. We can have conversations on, well, if this happens, what expenses are we willing to cut? So that we don't have to pull from a declining asset.
Luckily for us, most of our withdrawals from client accounts are discretionary expenses, meaning they're vacations and fun. We would not have you stop those, Tommy, in a declining market just because. But if we get into a sustained period of decline, maybe we would make a change. But we're not going to immediately run for the hills if the market drops 10% tomorrow.
Tommy Blackburn: Exactly. We're going to monitor and if it seems like we're on a bad trajectory, we'll be discussing what adjustments can we make? Can we cut back? But just because of a blip in time, those are going to happen. Marcus Swing—John and I were discussing before jumping on in here about the first election for Trump and how when he won, the markets immediately dove, I think like a thousand points they were down, but then they came back almost immediately as well.
So again, that voting machine where emotions are kind of can run through the market wildly. It can do some weird things in the short term, but it usually gets back to logic long term. And conventional wisdom doesn't always hold. We're positioned the best we can be to take whatever comes at us.
But the prognosticators are so often wrong. John mentioned the selling main go away and how that would have failed you pretty poorly. I was even thinking back to coming out of 2022, which was the last bear market and into 2023. John, I don't know if you recall this, but everybody was down and all of the forecasts where it's going to be another ugly year, buckle up, it's going to be rough.
And then 2023 ended up, the S&P I believe was up about 24%. So oftentimes the forecast you hear, all of the doom and gloom, or the optimism is not—it's here and then it's gone. Nobody holds it accountable. It's often wrong. And we invest because we get returns from investments because it's uncertain.
Because there is always risk. There's always—we don't know for sure what's going to happen. And that's why you make money off of your investments. If we knew exactly what was going to happen and there would be no gains to be had, so you have to accept that investing is always going to have an element of risk to it.
John Mason: You're 100% accurate, and there's as much risk in letting the tail wag the dog rather the dog wag the tail, meaning every time we think we know something better than everybody else, we're adjusting our risk of our portfolio. Trump's going to win. We want to be 100 percent stock.
Trump's going to win. We want to be a hundred percent bonds, and it's like, well, we're taking as much risk by trying to time our risk profile. We're taking more risk by trying to time our risk profile or our investment allocation based on probably flawed assumptions than we are just staying true to ourself, understanding the volatility that the portfolio is going to generate and the returns that should generate over time.
It's more risky to try and make a change based on emotion. Now, if somebody's risk profile has changed for whatever reason, they need to spend more, they need to spend less. There's been a material change in their financial plan that calls for more or less risk. Well, then we need to go ahead and make that change, but we don't want to make changes at the wrong time, which is one of the things that, if clients are overly conservative.
And we show them that that's not a great thing. We don't want to wait for volatile times to try and make those changes. If somebody is overexposed, that's also not a good thing. And the worst thing that we can see in an investment portfolio, Tommy, is when somebody wants to climb up and down the ladder, as far as the amount of risk that they're taking, that's really a pretty dangerous game.
Tommy Blackburn: Yeah. We want a strategy. Our strategies are—they're liquid. They can be changed easily and frequently, but that's not a good strategy. We like the flexibility we have, but ultimately we want to pick a strategy that we're going to stick with. Granted, life and situations are going to change and there will be times to change the strategy.
But overall, we want that to remain the same. We will make tweaks as we go through time. Inside of the strategy, we will make underweight, overweight. We small tweaks around the edges, but not huge bets. But ultimately, yeah, we want a strategy that we can stick with because constant changes—that is definitely risky and probably going to lead to some negative outcomes.
John, I wonder if now would be a good time to bring up what we were talking about earlier, looking at rolling periods of returns like over a 10 and 15 year period.
John Mason: Let's, let's talk about rolling periods. And I also want to give a kudos or a pat on the back to all of the advisors at Mason & Associates, as well as our clients.
These times, this is very polarizing. We understand that people have strong views on either party. We understand that whoever wins gets to decide the death or destruction of America is what people think for each party who will win, right? If I think Trump's gonna win, I think Kamala would ruin the country. If Kamala wins, I think that's going to ruin the country, right?
We have people on both sides of the spectrum here. And I think big kudos to us as advisors and our clients—is we've been able to take a step back here and say, all right, we understand that one party or one person may not be great for the country, and we may disagree long-term where the country is going, but we also have to take a step back here and say, “We're going to win regardless.”
We may fundamentally disagree with whoever wins, but whatever tax law comes out, we're going to update, and we're going to tweak, and we're going to make it, and we're going to win to the best of our ability. So do we share your concerns about the direction of the economy and the future of the country? Sure we do.
We both have young kids and there are some things that are concerning. Does it keep us up at night? It doesn't. Because at the end of the day, we're going to vote, Tommy, we're going to do the things we're supposed to do. And then we're going to get a new tax law. And we're going to figure out how we win from it personally and professionally.
And we're going to figure out how our clients can do the same. So if you find yourself tuning into this episode and you have fears or you have concerns, that's okay to have fears or concerns for the long-term viability of the country. We should not have fears or concerns as the long-term viability, hopefully of your financial plan, if you have a really good financial planning team who has helped you go through stress test, who helps you understand the volatility, who helps you understand what tweaks can be made over time. So those are fundamentally different things, right? Concerned about the direction of the economy versus worried that I'm going to end up bankrupt one day.
Hopefully these two are disconnected. And luckily we have received very few phone calls, Tommy, on people who are concerned. I don't think we've had anybody call and ask to move to cash or anything like that based on who they think is going to win in the election. So great job clients remaining unemotional, great job advisors who are not letting this impact your advice and your client's investments and financial plan, and again, it's okay to be emotional as long as we don't let it impact all areas of our plan.
So great job, everybody. If you're a client and you have a concern and you want to talk about it, we're also here to talk. So I want you to know that loud and clear is we're not saying don't call us, but we are very proud that we're not getting a lot of those calls. Aren't we, Tommy?
Tommy Blackburn: That's right. Our clients are great and we must do a great job as a firm of putting the focus on, again, the things that we can't control.
You said it very well. We have concerns. We have kids. We're worried about the—are thinking about the future for them. But I think as John and I have talked to as we returned from a recent trip together, we're trying to do everything we can within our own control to set ourselves and our family and our communities up for success.
So at the end of the day, you've done your best of things you can't control. Like I can sleep at night, like, just like you said, because if I happen to find myself in the wrong alley, despite doing everything I could, and somebody takes me out, well, I had to live life. I had to live life. I did the best I could.
John and I eat our own cooking. All the advisors do. We're invested the same. We're following, implementing the same strategies for ourselves that we do for our clients. Um, which was also, as a side note, an interesting thing of our study group that we did was kind of looking at our personal finances because as advisors, you're doing it for clients all the time.
You don't always step back and look at yourself. So it was a good exercise to go through, I think. And I don't believe I'm fibbing here at all. I believe that John and I had actually done a good job as we went through the exercise of, again, eating our own cooking and mirroring what the advice we give to our clients and having our own houses in order, which kind of goes back to being able to sleep at night.
I've done everything within reason and within control that I can.
John Mason: I had, Tommy, I think you've heard me tell this story before. It's directly related, I think. Sometimes I'm a little scattered. But I remember it was when we were at the old office. You may have been working with us already. And I had this bump on the back of my ear.
And I Googled it and it was like, “You're dead. Like, you're going to die.” Very bad. Like a bump on the back of your ear is guaranteed death, right? It was not a good thing. And I remember my dad, Mike, he actually like ran an appointment for me that afternoon. I went to the doctor. I told the doc like, “Hey, I'm, I'm going to die.”
And he said, “No, you're not. Everything's fine.” But as I was going to that appointment, I remember thinking like, boy, I've done pretty much everything I can do to protect my family. I've got disability insurance. I've got life insurance. I've got a financial plan. I have an estate plan. I've got a tax plan.
I've got all these things ready. And if this is it, yes, I'm going to be sad. Yes, it is not a good thing for this to be it. But at the end of the day, I did the best I can do. Since then, not only are we controlling all of those things, we are seeing a concierge doctor. We're eating better. We're working out more.
Like we've taken all these things into our own hands. These are the things that really makes sense to spend your time on is controlling the things you can control on your health, your finances, the insurance, spending time with your family. Like this is where we need to be focused. Now, Tommy, you mentioned our study group or our mastermind group the conference we put on recently, and two things you made me think about, which I think is directly related to this episode of election turmoil, scared, all this bad stuff, two thoughts is you and I don't have a lot of people that we can talk to, right?
So we can share our finances among each other, and that's great and wonderful. But we can't talk to our next-door neighbors about our finances. We can't talk to our friends about our finances for a variety of reasons. It's just not something we feel comfortable doing. It was just so gratifying to be in a room of other financial planners where we could share experiences, share issues, share thoughts, concerns, just be transparent about who we are because we have needs too, as humans.
And we don't ever really get to express those ‘cause we're most of the time solving client problems. So it was very clear to me and I think to you that we don't want to live on an island anymore. And clients right now I hope don't feel like they're living on an island because they have us. So when they have concerns, when they have questions, when they have somebody that they need to talk to about their finances, they have us as a sounding board that hopefully we're creating that same kind of experience that we had to create for ourself in Minneapolis, which was a study group.
Hopefully our clients feel supported, empowered, educated, motivated, that they have more than just a financial consultant, but somebody who's really cares about them and somebody who can relate to them on a human level. I think that's so important. We had to travel to Minneapolis for it. Hopefully our clients feel like they have that every time they interact with us.
Tommy Blackburn: Yeah, hopefully. I think that's well said. That is certainly what we want to be in our clients' lives. And I think anecdotally, or just the relationships we feel we have with them, I think that is true. We'll come back to two, I guess the political side of things. It's not so much an investment perspective for us.
There may be some changes that adaptions will happen, but it's always about taxes and that's probably the biggest error here. And the current administration, the Biden Harris administration at the beginning, tax policy almost changed. They were pushing bills through and there were going to be some decent changes to it.
And we were all hands on deck in the trenches looking at each client's situation and figuring out what, if any moves we were going to make. Um, and then it didn't end up coming to fruition. So we were able to back off of there, but that's how it'll be again. As of right now, we know. If nothing changes, a lot's going to change come 2026.
We have one more year of the current tax code before it flips back to what it used to be. So we'll be watching to see what happens, and are we going to be extending the current? Uh, is it going to be some hybrid of the current and something new, or just a complete overhaul? Wholesale change in the current tax policy.
We have some ideas, but it's too early in our opinion for us to start going gung ho on those just yet. We'll see how it comes. Most likely there's usually some form of compromise that has to happen in the American political system. So hopefully nothing too crazy is going to come out of it. And I guess it's also a continuation of what we've been doing, which is we've sat back when this current tax regime went into effect and said there's a pretty good regime to plan in historically.
So let's do these Roth conversions if they make sense for your situation. So everything right now is fairly status quo. We're keeping an eye on the changes that will come from that. And I think that'll be where the most action, that's what you can control. You can make—those are decisions you get to control is a lot of your tax planning moves.
John Mason: And we can't fret about it until we have the new law, right? Like until we know what the rules are, like we could spend all kinds of energy worried about, how are we going to tax unrealized capital gains? Like, how's that actually possible? Like that could keep you up at night, but why? Like once we know that it's a rule, then we have to figure it out, but there's no point in going, here's the only thing I think we know for certain.
The tax law is going to continue to get more complicated. Every time they say it's going to get easier, it just gets more complicated and maybe always won't always be true. But in my 14 years, Tommy, I think you would agree that every time they make it simpler, it gets harder.
Tommy Blackburn: Yeah. Oh, I completely agree.
It seems like usually there's some improvements where it's like, okay, this, this has made life a little easier, but usually there's like 20 new complicated things for the one thing that got easier. So on the surface, yeah, it does not seem like it's gotten any easier and continues to get more complicated.
And one of the most recent ones is the various forms of the secure act and how those have impacted retirement accounts somewhat—some in positive ways, but the inherited retirement accounts has gotten really complex; it has not simplified in our opinion, and yeah, that's an area that's it continues to get more complicated.
I think you're absolutely correct. And unfortunately, as I think about this, technology probably makes it so. With computers and so forth, I think you can actually have more complex systems for us to live in. Whereas I kind of feel like if you didn't have all this technology, there's no way you could be this complicated.
Because it would drive people insane to administer it. But, I'm sorry, a little bit down a rabbit hole there.
John Mason: There's so many rules, like, the fact that QCDs, Qualified Charitable Distributions, and RMDs used to be linked, and now they're not anymore. Even that's a complication, or the long-term capital gains bracket and the 12% or 15% bracket used to be linked, and then they're not anymore, and it's like Secure Act 1, Secure Act 2, when's your RMD?
Well, it depends on what year you were born, and depends if you already had one, and it's just, it is, it's very challenging, and At the end of the day, we're going to figure out how our clients can win from whatever tax law comes our way. And that's why we do tax planning. That's why we believe it's one of our biggest values.
That's why when we went to Virginia Tech and we spoke to the students and we said, If we could only keep one software program that we use right now, It wouldn't be our CRM, it wouldn't be our financial planning software, it wouldn't be social security, It would be our tax planning software. Hands down would be the one thing that we keep.
So that's how important it is to us. So we talked a little bit about long term investments. It's scary out there. We get it. We're hoping that you feel calm, cool, and collected. If you're a client, just like our song says, “You can rest easy once your plan is done.” Just note that your plan's never done because we're constantly tweaking and updating it.
But we looked at some rolling periods. A guy on LinkedIn made this post. I think the numbers were produced by Lincoln Financial. Admittedly, Tommy and I did not fact-check this, but we gut-checked it and it seems right to us. So we're going to show you the numbers that we saw on this LinkedIn post, which we believe to be in the ballpark, if not completely accurate.
So a 60/40 stock bond portfolio over every one year rolling period generates a 7% return 65% of the time.
Tommy Blackburn: So about two-thirds, right?
John Mason: Yeah, about two thirds. So whoever wins this fall next week, two-thirds of the time, you would think the market would be positive every one year rolling period. So then we're gonna skip over three, we're gonna skip over five, and we're gonna go straight to 10 years.
73% of the time, we've generated 7% or more in return over a rolling 10, and given this away. So the longer you wait, the better the percentages get. So at 20 years, 84% of the time we've generated that percent of return. And over every 30-year period, Tommy, did I write this down? Right? 100% of the time, every 30-year rolling period, a 60/40 portfolio has generated 7% or higher.
Tommy Blackburn: That's correct. Yeah. And that's where we go back to long term. And it didn't really take to get to 100%. Yeah, you went to went to a pretty long period there. But I mean, the one year number is actually not that bad. Two thirds of the time, though, we would say that's not long-term. But once you got to 10 years, it’s heavily weighted in your favor.
And I think another statistic is there hasn't been a 15-year period where the market hasn't been positive. So yes, that's a decent amount of time, but that's why we also always keep coming back to, if we have a long time horizon, this is a long plan that we're dealing with, this works, at least historically.
And we believe it will continue to work.
John Mason: So two thoughts there is, but it's different this time. Right, but it's different this time. So how do we address that? And then I think it makes sense to kind of discuss 30 years because many people may be listening to this podcast and think, “I'm retiring tomorrow. I don't have 30 years. I need to start using this money tomorrow.”
Well, in that scenario, Tommy, I know you've done this too, is it's not uncommon for us to meet with a client the year before they retire. Oh, by the way, we have a podcast episode on that. Maybe we'll link that below if we can. And it's common for us to say, Mr. and Mrs. Client, plan for the market to be down 20% the day you retire and the day you start spending your money.
That's okay if that happens and we can plan for that and we can help you through that. Everything's going to work. So we do think it's important that as you start thinking about retirement, that you are prepared for the market to be down just at the time you're trying to flip this switch from saving to spending like, yes, that's not easy.
It is really hard. It takes probably three to four years on average for us to prove to our clients that it's okay for them to spend their money. And certainly it's harder if the market's down at the beginning. So that's one general thought. The other thought is we're planning for this, we're ready for this, and we're going to make sure that the clients know that yes, volatility can be coming, but oh by the way, you're going to be retired for three or four decades.
As a federal employee retiring at minimum retirement age, you're talking somewhere between 56 and 57, then depending on your age, you could live till 97, Tommy. That's 40 years that this money is going to be invested. So does it really matter what happens tomorrow versus what happens over the next three or four decades?
Tommy Blackburn: No, not if we planned accordingly, which we would, yeah, we plan for those scenarios. We try to not be a—we're pretty conservative, but we try not to be so conservative that it just doesn't make sense. There is does reach a point where it becomes nonsensical that you could be so conservative.
Like I remember seeing one projection from another, I guess I'll call it planner where they had a client's first pension decreasing over time. And I was like, okay, that's, I don't know where we came up with that. Because as we've joked before, we get a call, we get a cold lead, it's a cold love, but it increases by inflation, but we doesn't allow it to go down for deflation.
So that's overly conservative. Sorry, a little off the track there. But we're conservative within reason. Episode 15, John, was the year before retirement. So hopefully that'll make it into the show notes as another episode to reference.
John Mason: And yeah, there's a term sequence of returns, and sequence of returns does matter.
So basically folks, what this means is if your first 10 years of retirement, you have negative market performance, or it's one of those times where it's less than stellar, well, that does impact the long-term viability of your portfolio compare to somebody who retires with 10 years of bull market in the first 10 years.
So sequence of returns does matter, but here's the entire picture or here's more of the picture—is we typically start clients off at a 3% or 4% distribution rate, not because we think that's where we have to start, but because that typically is helping them do everything they need to do anyhow.
So we're typically starting at the lower end of the scale. We're also typically able to make adjustments. So we're not impacted as much by sequence of returns if we're willing to make adjustments during hard times. And then finally here, our clients go through three distinct phases in retirement.
Go go, slow go, no go. Right, Tommy? And we know that the go go years are the most fun, where we're spending the most amount of money. Slow go—trips and vacations and spending tends to decrease. And as federal employees, we actually see you becoming net accumulators again in phase two and three. So, no go—you're probably not spending much money. Long-term care is certainly a concern.
So that's not election-related, but at the end of the day, we've got great health insurance, great pensions, assets that are bigger than most. We are prepared for this.
Tommy Blackburn: Yeah, we have flexible, resilient plans, and that's what we love, is we love not being locked into one particular course.
We give ourselves the ability to bob and weave. And we started out conservative. The distribution rate is awesome, John. It's definitely customized to each client. A lot of times we're delaying social security, so we have other levers we could pull. We could turn on social security. If we find our earlier than we maybe were planning, if we find ourselves and the sequence of return is real as a risk and we do look at it.
However, we even step back and say, this is also somewhat of a marketing thing for those that sell fear. So it's not that it doesn't exist. It does exist and we do care about that risk, but there's a much higher probability that you're going to have a positive sequence of returns. So most likely we're going to start off somewhat conservative and flexible, and we're going to go through time and find out that things are turning out better than we were expecting and actually be able to bump things, things are going to look better than we were originally planning there.
So did want to get that out there. And the other thing is I don't want to tell people to take things on faith, but it's like, just think about innovation. This goes back to capitalism of why we think it's going to work in the long term. I certainly didn't know that AI was going to become such a thing over the past couple of years until ChatGPT showed up and all of a sudden it's influencing so much, but like that's innovation.
Some of the ways we're managing resources is innovation. I mean, you think about how much, and that's just it, people constantly thinking and trying to improve things that creates additional value, additional profits, keeps things moving.
So as long as that continues to be the case, which I know over our careers and our lifetimes, John, we've seen a lot, it's shocking. It feels like we haven't been at it long and there's been a ton of change. So it's hard to imagine that it won't continue.
John Mason: We're smart dudes, and we're continuing to innovate what we do at Mason & Associates. Innovate and iterate. Every day, every week, every month, every year.
There's a lot of people out there that are smarter than us. Like thinking that they're not doing the same thing is kind of illogical. Like if we're doing it in our own small business located in Virginia, serving clients throughout the country, you have to imagine that there's a lot of brilliant people out there trying to innovate, whether it's the healthcare industry, AI, like you mentioned, innovation is here to stay, and that's not going anywhere.
Tommy Blackburn: I mean, that's like humanity at its core, right?
John Mason:: Right. I mean, the whole reason we're here is innovation.
Tommy Blackburn: Right.
John Mason: I guess at some point, the world could be so hard that it disincentivizes innovation, but that's a hard world to imagine. Tommy, you mentioned risk of sequence of returns and selling fear. You know what nobody talks about? Nobody talks about the client who invested very well for 30 or 40 years, who retired with more money than most, who barely took any distributions because they were scared of their own shadow.
And then they died with $40 million because they never spent any of the money. Like, isn't that a risk too? Isn't it a risk to not understand what's possible? So you did without for three decades, and then you leave this—like that's actually a higher probability.
Tommy Blackburn: Yeah, I think you're right. And that's kind of where I was even thinking and going, and you've elaborated or shed some additional light on that, like, we're conservative, particularly in the beginning, but we're trying to be overly conservative. This is the same thing, we're trying to balance—we want this to last, we have a long period of time to plan for, we have a lot of variables to make sure we're able to bob and weave with, but we don't want you to miss out on life.
We want to balance that. We don't want to get to the end and have a look back and say, “Why? I could have done so many other things.” And if you just in your nature to be super frugal and that wouldn't have been you, then so be it. But we certainly don't want it to be like, “I wish I'd have known.”
We do want to have a conversation of, “Hey, there's a healthy distribution rate here. And if there's something that you want to do an experience or something that could change the life or somebody around you, we should have those conversations,” and we'll let you know too. We feel like we're getting to an unhealthy place where now you're jeopardizing the potential long-term viability and sustainability of this plan.
So there's a lot of balancing we try to do. I'm really glad you said that, John, because that's where my mind was going to is—that, going back to that plan of the first pension decreasing over time I saw, that's exactly what went through my mind. I was like, well, yeah, you're trying to scare them and this is completely unreasonable.
John Mason: So I guess, Tommy, as we kind of move into closing comments here, a lot to unpack from this, whether it's investment-related, political, I think we mentioned this on a previous episode.
This is going to air first. So I'll say this one and then it'll air again on another episode, ‘Bull Durham,’ Kevin Costner, he's a pitcher. He on the mound in his final game. If you haven't seen the movie, I think it's pretty good. I think it's held up over time. But if there's something in there that you don't disagree with, please don't get mad at me, but he's like, you always know when you're at Yankee Stadium and everybody's telling him he's a bum, they're yelling at him.
And before he throws the first pitch, Tommy, he says, “Clear the mechanism.” And all the fans go blurry. It comes down to this, like a humming noise, and he's controlling his thoughts, what pitch he's going to throw, and he's in the zone. And I think that's so important that as we get up to election time here, that we clear the mechanism that we focus on the things that we can control. Again, things that may happen as a result of this election for the long-term success of the country, well, one president ruined the country. I don't think that that's actually going to happen.
But yeah, we can all agree that we don't like some things on each side, but at the end of the day, your financial plan hopefully is rock solid. And we have to, I think, separate some of “Where's the country going?” versus “Where am I going in my financial plan?”
And my biggest fear, Tommy, is that folks listening to this podcast—hopefully not our clients—if the wrong party wins, meaning the person that they disagree with wins, that they're not going to buy a house in Colorado to be near their grandkids because XYZ candidate won or that they're not going to take that trip to Alaska next year because they're worried that capitalism is going to end based on who won.
That to me is just so concerning that I'm hoping we've been able to alleviate that for clients. But it's not just where is the country going. But if you're letting this impact some of these decisions in the short term, we have so much time left on this planet. It feels wrong to delay those decisions just based on politics.
Tommy Blackburn: I don't even say letting your emotion. Yeah, you're right. You want to be a good citizen and informed citizen. You care about your country, cast your vote, try to influence your community best you can. But yeah, you're right to put life on hold for things that are outside of your control. And even just the emotional aspect of it.
I personally get frustrated. It's just like, I don't want to put so much emotional stock into what is happening here? Yes, I care. Yes, I'll vote. Yes, I will try to be informed as best I can, but I'm not gonna get all wrapped up and been out of shape and basically let what I believe is, I don't know if it's media or what's somebody else trying to control you over something you have no control over.
So hopefully I'm saying the same thing you are, which is focus on the important things and put it all in context and do the best you can with your situation and try to live the best life you can.
John Mason: Well, there's always risk in waiting too, right? There's risk in doing and there's risk in waiting.
So the dream house comes up right next door to you and you don't want to buy it because you're worried about politics, there's a risk in doing it now because the whole world could end apparently, and then there's risk in delaying because now that house is double the price it was a month ago.
Tommy Blackburn: That doesn't come back on the market. Yeah.
John Mason: There's risk both directions, and it all comes back to having a resilient financial plan and and a well-thought-out—and like you've said many times, we're flexible in our own personal financial plans. We make sure that our clients plans are flexible. And one of the best ways to do that is to not have over committed yourself to any significant expense.
So, you know, for example, we do not own vacation homes, Tommy, we go rent other people's homes. Because apparently the whole world could end and if it does, we don't want to be stuck with a mortgage payment on a house in the Outer Banks. That's just not part of our financial plan right now. And I think a lot of our clients feel the same way that we can dial up those discretionary expenses pretty high.
And then, and if we do have to make adjustments, we can actually—it's amazing what the human mind and body and spirit can do. We've got clients living on 15 grand a month that, if they had to, could live on seven. Would it be an enjoyable experience? No, but they could do it.
Like if they had to do it, they could do it. And guess what? Most of our clients have pensions, which means even if they ran out of a TSP, they're not broke at the end of the day.
Tommy Blackburn: Yeah. I think just to kind of piggyback on what you're saying—it's about what's important to you, and flexibility right now is very important to you and me and many of our clients being able to have a lot of options of, “Hey, I can go to the beach for a week and I can travel the world and I can do all these other things that I haven't committed to one single thing.”
But we also have conversations with folks where it's like, “No, I've always dreamed of having that beach house.” It's going to be where the—and if that's important and we agree that it means some other things that it's always trade offs. We're not going to be able to travel as much, et cetera.
That's fine. I mean, that's a lifestyle decision. That's a goal. That's a dream. So it's making informed decisions and understanding the trade-offs around decisions.
John Mason: Well, Tommy, it's been another great episode of the Federal Employee Financial Planning Podcast. As always, thank you to our clients.
For those of you listening to this episode, thank you to our listeners who this is our only contact with you. We appreciate you being on this journey with us for over three years. Clients, we hope you feel supported, empowered, educated, and motivated. We hear you. If you do have any concerns, we're here to listen, to help try to alleviate any concerns that you may have around the political climate or anything that happens in the future.
And we're just so proud, again, of you, as well as the advisors here for sticking to your plan and knowing that we're controlling the levers that we can control. Audience, one more time, call to action. Introductory phone calls, 15 to 30 minutes, no fee. If you're interested in becoming a client, you can schedule those calls.
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We serve those in or near retirement with a million or more of assets, and we specialize with you, the federal employee. So thanks again everybody for being with us. We're Mason & Associates, masonllc.net .
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