DON’T LET MARKET TURBULENCE DERAIL YOUR FINANCIAL GOALS

[00:00:01]Typically, your monthly mortgage commitment should be no more than 25% of your gross monthly income. All right? And, that’s your, primary residence there. So, when you think about buying a home, the bank is gonna approve you for one number, but you have a responsibility to yourself, your current self, and your future self to say, Hey, is that the number that I should take? Should I take out everything that I can afford or should I scale it back some, because I wanna build in redundancy in my financial position.
[00:00:30]You are listening to the Pilot’s portfolio, the show dedicated to guiding professional pilots towards a future of financial success and stability. Fly along with your host Timothy P. Pope, as he provides financial planning insights and answers to your burning questions and dives into real life stories from fellow pilots who share their successes and cautionary tales. The pilot’s portfolio takes off now.
[00:01:02]Well, welcome to the pilot’s portfolio guys. Timothy P. Pope here, certified Financial Planner, specializing in the planning needs of the professional pilot. I’m glad to have you along today, we are still talking about the volatile market and its impact on your financial planning and investment management decisions. But I do have an update for you. You’ve heard me talk in previous episodes about studying and training for my instrument rating. I am finally done with it. I passed a check ride a few weeks ago. It is very nice to have that behind me. It turns out that I’ve got this nice shiny rating but nowhere to go. [00:01:47]So, if you’re on the eastern side of the US and you wanna get together, reach out, let me know. I would love to fly to some places, but it’s nice to have that time back. I do not have a surplus of time in general, so I would take my kids along on training flights and spend time with them that way. When we’re at the house. I’d say, Hey, I need to study for instrument and, they would say, dad, can we help you? And so I ended up creating like flash cards for them to, to help me study and for us to hang out together. And just the sheer volume of information. I mean, you guys know, I mean, you’ve done the instrument plus all the other stuff. And so anyways, I’m glad to have that back. And it, and it seems like now when I go fly, you know, I’m not studying for a test, right? I’m learning things because, I’m interested in it and it’s gonna help me be a more proficient pilot. And learning the avionics is super cool. The G 7 and the SRU is quite something that’s super cool.
[00:02:47]So anyway, happy to share that update. Also got some good feedback on the last episode about the alternative investment in oil and gas. Sounds like there’s quite a few of you that are interested in learning more about the alternative investments, which is cool and how that can be part of your financial plan. But, today I wanna talk about the capital markets a bit more. And if you have been looking for relief in the markets and clarity and policy, I’m sure you are still on the search. The market has continued to have wild swings as we finish out April, 2025. And in our last episode, we talked about the value and the wisdom of being a long-term investor. You know, while acknowledging that as you move through time, your long-term goals become your intermediate term goals, which in turn become your short-term goals, and there are certainly steps you want to take to protect your cash and to protect your ability to execute on those goals. Now sometimes our goals are things that can be delayed because they’re discretionary in nature, but sometimes they cannot be delayed
[00:03:57]Like you cannot delay your child graduating high school and going to college, or the need to purchase a new vehicle because your current one is giving you trouble. It turns out it’s very hard to delay retirement in this industry, so it pays to be ready. I don’t know about you guys. I don’t know how often you look at say stock charts or, charts of broad indices, but it’s very interesting here lately if you’ve been looking at stock charts, say from a year to day perspective, or from February, or even just this last month, and you look at how sharp the peaks and valleys are, take a chart, look at it. And as you scroll through, look at the dates on the bottom to see if there’s any notable dates that jump out at you that correspond to a lot of volatility, like Liberation Day, that announcement, or just other news releases. [00:04:51]And, I want you to notice how sharply the market can move in one or two or three trading sessions, whether positive or negative and, you’ll see, you know, there’s been some extremely negative days. And then the market would respond kind of a rebound, if you will ’cause maybe it felt that the market was oversold.Okay, so these very quick and sharp market movements that are indicated on the chart, I think it is just a testament of how efficient our market is. We are in the information age, okay? So when a piece of news hits, the market has priced that in, within minutes probably seconds, and if you’re reading it in a news article, I mean, it’s way too late, right? The market has certainly priced that information in, and I think just looking at these charts and the extreme volatility highlights the challenge of trying to time the market on a day-to-day basis. Okay. And that’s the point. You know, I think that your time is far better spent being thoughtful about how you build your portfolio.
[00:06:03]You know, how much large cap growth do we have? Or how much large cap value should we have? Are we overweighting any sectors, and if so, what are those sectors and why are we overweighting a lot of time folks like to, overweight tech or energy or healthcare, right? You know, how much mid cap and small cap companies do we have? Maybe let’s take a look at the expense ratio and fees inside of our portfolio and the expense ratio inside of our mutual funds. And, are we paying more than we should for a particular investment? Are we being intentional about how we trade in the brokerage account or what we hold in the brokerage account
[00:06:44]Because, if we’re holding a stock or a mutual fund that has a high dividend yield in a brokerage account, it’s possible that it’s generating an unintentional tax drag, okay? Or, the way that we’re trading in the brokerage account, it’s possible that it’s generating an unintentional tax drag, and as a professional pilot who has a higher marginal tax rate, you are likely subject to NITT. So NIIT investment income tax. Okay, that’s an additional 3.8% on top of your capital gains tax. And, so you’re probably wanting to be careful about generating unintended tax consequences just by the way that you’re investing. Okay. I think it’s well worth your time to be thoughtful about how you diversify your assets.
[00:07:35]Meaning, hey, I don’t wanna put everything in one basket, perhaps I, of course, I want to have long-term investments and I know that they’re going to be subject to market volatility, but maybe I want to have investments that are growth oriented but, that I can access without penalty if I need to. Okay, so maybe everything’s not tied up in a retirement account. My 401k or my Roth, or what have you, maybe I also have some brokerage accounts so that I can have quick access to them if I need to. Of course, you’re going to have your emergency fund, but then there’s other assets that you want to have access to. You know, in the event of a slowdown, and we need to access cash or quite frankly, for opportunities, right? [00:08:20]So there’s some opportunities present themselves and you, it’s, it can be nice to way to pull it outta the brokerage account there. So, being a long-term investor and staying the course, it doesn’t mean that there are no decisions that you need to make about your portfolio or your financial position. Okay? In fact, there’s many decisions you need to make, but. Being a long-term investor, I do think it means that you are not always trading the latest crises or the latest headline. So as a pilot you’re very familiar with the idea of redundancy. Again, I think that’s one of the things that makes flying so safe and flying commercially, especially safe, right, is this idea of redundancy.
[00:09:04]And, we’d like to build redundancy in your financial position as well. So when we’re evaluating major financial decisions with our clients, we discuss things like, airline slowdowns, downgrades, losing your medical. And, while most of the time multiple setbacks may not happen at the same time, it certainly is nice to plan to be able to absorb multiple unforeseen setbacks without it completely derailing your financial position. So, here’s a few ways that you could think about doing that. Number one, start saving with what you have now. It’s a great exercise to save and exercise that financial muscle early versus saying, Hey, I will save later when I have more. Okay, I will put a caveat in there if you’ve got high interest credit card debt, of course we’re going to want to take care of that first before saving and investing. But other than that, go ahead and start saving with what you can now and come up with a certain percentage that you wanna save and just put that on autopilot. Okay? [00:10:03]Number two, when you make major decisions like home purchases, avoid buying at the top end of your purchasing power. You know, our clients know that we like to recommend. Typically, your monthly mortgage commitment should be no more than 25% of your gross monthly income. All right? And that’s, your primary residence there so when you think about buying a home, the bank is gonna approve you for one number, but you have a responsibility to yourself, your current self, and your future self to say, Hey, is that the number that I should take? Should I take out everything that I can afford or should I scale it back some because, I wanna build in redundancy in my financial position. Speaking of buying a home, guys…
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[00:11:48]So the same thing with buying a car. Okay? Car prices have skyrocketed in the past couple years, but I would encourage you avoid the top end of your range and, for goodness sakes, don’t push out the note to five years
or seven years. Okay? Pay the car off. A-S-A-P. I typically recommend pay it off in, in three years, or less, if you can. Another way to build redundancy in your financial position is the fact that timing matters when you guys are flying. There’s certain things that you’ll do at cruise that you won’t do, say during takeoff or climb out, you know, takeoff and climb out is, is much more stressful time. There’s a high workload time. It doesn’t afford you the ability to relax. And the same thing is with, with your finances. There’s going to be liberties that you’ll take, that it’s, it may not make the most financial sense.
[00:12:40]When you get to cruising altitude, that’s what you’re worked for, okay? You can do those things and it’s not gonna derail the plan. Clients tell me all the time, Hey, I’m keeping my FO house. That’s cool. It’s cool if you wanna upgrade your FO house and upgrade that to your captain house. What’s not cool though, is upgrading to your captain house before you’re ready. Okay. While you’re financially, you’re still on climb out. And so, you know, that’s just one example. Other examples could include, you know, buying an airplane before it makes sense. Right? So timing matters,’cause what happens if you load up on these things on the front end, it can stress your financial position.
[00:13:21]You are unable to save adequately, which means you’re unable to build your financial position adequately. Right? So sometimes it makes sense to pause on major purchases or major expenses until you have clarity, you know, on what the, what your immediate future looks like. And that’s just another example of timing matters. And so it’s, it’s in all of our control to be thoughtful about that. The last thing that I’m gonna mention here in terms of how to build redundancy in my financial position is have access to cash. Okay? Cash your high yield savings, your money market interest bearing accounts in your brokerage account. [00:13:58]You have stocks and bonds that you can turn into cash, right? Because, when things go sideways, you’ll certainly appreciate having access to cash and not necessarily having to tap credit. Okay. So, I want you guys to think about building redundancy in your financial position. And, one last thing I wanna talk about in this episode is, I made a point, I wanna just a point of clarity that I, talked about in our last episode, which was, hey, how a down market could be an opportunity for a Roth conversion, but I wanna talk about a special, a specific case of a Roth conversion. I’m actually working on one of these cases right now, and so this could be helpful if you guys find yourself in the same position. Sometimes we find ourselves with non-deductible IRAs, meaning we’ve been making contributions to a regular IRA.
We’ve not been taking that tax deduction for those contributions and, we’ve been investing that IRA and the market has grown it. Sometimes, you know, this shows up because you know at one point you were investing in a Roth and then you started to make too much money to invest in the Roth. So you asked your CPA, well hey, can I invest in an IRA?
[00:15:11]And they say yes ’cause there’s no income limit. And that is true, but there are limitations that will determine whether you get a tax deduction or not. So, let’s say that you have been contributing and you’re making these non-deductible contributions to your IRA. And, just for example’s sake, let’s say that you know, you have $50,000 of contributions in this thing and over time the market has grown the account before the down or the market, pulled down here, you know, it was worth 90 grand. Okay? So that’s $40,000 in earnings. So if you were to convert that account, you would have to pay tax on all $40,000. But, let’s say this downturn in the market has decreased your account by maybe 20%. Let’s say that you are invested a little bit more concentrated than the broad market, the S and P, and so right now you’re underperforming the S and B. Okay, so let’s say you’ve pulled back my 20%, and so now instead of being $90,000, your account is worth 72,000. Now if you were to do a Roth conversion on this account, instead of having to pay taxes on the $40,000, so you only have to pay tax on $22,000 there, and so you can see how that makes a material difference.
[00:16:29]Hey, I’d prefer to not add $40,000 to my taxable income if I had the choice to add $22,000 to my taxable income for the year. And, the reason that this could be interesting is because while you have this non-deductible contribution or this non-deductible, IRA sitting here, it is precluding you from doing a backdoor Roth.
[00:16:54]Like you’re not really able to do a backdoor Roth when you have these pre-tax earnings sitting around, you’re not gonna get the impact that you want and, so if you find yourself in that case, think about it. Hey, has the market gone down enough? For this to be worth my while and maybe it has, maybe it hasn’t you certainly are gonna want to complete your due diligence ’cause this is a taxable event here. I’m not saying just run out and go and convert these dollars. It is a taxable event and this is not tax advice, but it’s something I want you to be aware of ’cause it could make a difference for you. And sure you know, he said, well Tim, you know, I’d be selling out if I convert it, and that is true, you’d be selling while the market is down, but you’re not exiting the market because as soon as the money hit your Roth, you’d be reinvesting those dollars. So you really wouldn’t be missing much time there. So if you guys have non-deductible IRA contributions. So, you have this basis, these after tax dollars
in your IRA and you have pre-tax earnings. Take a look at that, see if that’s appropriate, see if that could help you with your financial planning. So that’s gonna do it for this episode. Thanks for joining guys. Oh, in the episode that I am working on, is I’ve been talking to so many people that have lost their medical for some time and then regained it.
[00:18:08]So I’m working on an episode where we talk about understanding your loss of medical benefits between what your company has and what your union has. So I’m excited to dive into that one. So that’ll do it for today’s episode. Thanks guys for joining this one, and we’ll catch you on the next one.
[00:18:30]Thank you for joining this episode of Pilot’s Portfolio. If you found this information helpful, spread the word and share it with a pilot button. Or if you have questions and there’s something that you would like to hear discussed on the show, send us an email. You can find the address in the show notes for those of you who are ready to learn how we help professional pilots with their financial planning needs. Schedule an appointment. Until next time, keep the shiny side up and we’ll see you on the next episode.