PILOT’S PORTFOLIO: WHAT’S CHANGING IN 2025?

Tim:[00:00:01]I’m looking forward to playing with, this name, Pilot’s Portfolio. Because you guys, a lot of you at the majors, right, we know that the compensation converges but, to be honest with you, depending on who you fly for, your benefits are very different. What the company provides, what your union provides you could be represented by ALPA that are two different carriers and have two different sets of benefits, right? So in this season, I’m looking forward to get going deeper in that and also discussing what types of benefits you should be taking advantage of and when. Because something that may be a fantastic strategy years one through five of your seniority, that opportunity might become less interesting to you as your seniority increases.
Tim:[00:01:18]Well, welcome to the Pilot’s Portfolio everybody, formerly called the Pilot Money Podcast. This is great. New season, new name, new art. This is awesome. great to be back behind the mic. It feels like it’s been a while so excited for today’s episode and then the rest of this season guys. This is the financial show for professional pilots. My name is Timothy P Pope. I’m your host. I’m a certified financial planner specializing in the planning needs of professional pilot. So in today’s episode, a couple of things I want to go over is I want to update everybody, let you know what’s changed, what stays the same and what you can expect throughout the season. I want to talk about last year’s market and what that might mean for you and how you can avoid falling asleep at the yoke if you will and then I’m gonna wrap up with just what’s on the radar that I think it’s interesting to everybody that listens to this show, but probably very interesting for those above a certain threshold and also above a certain investable asset threshold as well.
[00:02:17]So, we are going to dive into those, but first I just want to remind everybody. So why the name change? It’s so funny last fall, you know, going through full reviews and I’d be meeting with clients and then without fail at the end they say hey, so like, you know, what’s the new name gonna be? So to some of you guys knew what the new name was going to be because I would share it. So Pilots Portfolio so the show was formerly called pilots money podcast and last fall, you know, I talked about it during some episodes, but I went to go trademark that name and somebody beat me to it. In fact, they had just trademarked pilot money. [00:02:54]And so Pilot’s Portfolio, is different than Pilot Money Podcast. I do think the, previous name certainly had a ring to it. But I’m looking forward to
playing with, this name, Pilot’s Portfolio because, you guys, a lot of you at the majors, right, we know that the compensation converges. But, to be honest with you, depending on who you fly for, your benefits are very different. What the company provides, what your union provides you could be represented by ALPA that are two different carriers and have two different sets of benefits, right? So in this season, I’m looking forward to get going deeper in that and also discussing what types of benefits you should be taking advantage of and when. [00:03:34]Because something that may be a fantastic strategy years one through five of your seniority, that opportunity might become less interesting to you as your seniority increases. So, we’re going to talk about that throughout the season. But that’s why the name changed, guys. And, another change that we’re going to have this season is you will recall that in season one we alternated episodes. So we had a solo episode and then we had a guest episode. And, that was fantastic because we talked to a lot of interesting people who showed a real expertise in their field and I think brought some action to the table for you guys and for me to think about, I think that was a lot of fun. On the other hand, so many of you have written in and said, hey, Tim, have you you know, have you considered this question or have you done this analysis or, you know, you’ve had questions about things that are going on in your life.
[00:04:28]And so I would love to give you more of the content that you want. And, so one of the ways to do that is to have fewer guests. So I can have more time on the things that you guys are asking about and you guys are talking about. So looking forward to doing that. I suppose we could always go to a weekly show. But I don’t, you know, I’m not, I’m not ready to do that. Father of five and all the rest. No, we’re not ready to go weekly, but I would be interested. I’m trying to figure this out so, maybe if you guys have ideas, but I think a live Q and A could be a lot of fun and valuable for listeners. So I’m still thinking about that. And, I welcome your thoughts. You can drop a note. The link is in the show notes there. So I think the big takeaway here is look, we’re going to have fewer guests this season so we can get to more of the content that you guys are asking about. That being said if you have requests for content or you have questions, just drop a note or send us an email.
[00:05:21]The link is down there in the show notes, or if you have guests that you want to hear on the show, definitely let me know so I can reach out to them or have the team reach out to them and get them on since there is going to be fewer guest spots. Now let’s talk about the markets. So, last year the markets did well. There’s several indices you could choose from, but you know, I’m talking about the S& P 500 is widely considered to be representative of the broad market, although it’s only a large cap, right? It doesn’t get into mid small. And
it’s, of course, it’s only publicly traded companies, but in 2024 the market was up over 23%.
[00:05:54]In the year before that, it was up over 24%. Now, if you only held the S& P in your portfolio, you may have captured this return, depending on your timing of when you got in or when you got out and all of that. However, if your portfolio was diversified or you did not have a 100 percent stock portfolio, your returns could have been less. Or, if your portfolio was very concentrated and just a few, they could have been much higher. The point is that the broad market itself did really well last year and the year before. And, by the way, I want to mention, when you guys log into your 401ks, a lot of times you see your personal performance and, a lot of times that’s different than what the actual market is doing. And, the reason is because your personal performance is calculated using a dollar weighted return. And that considers the influence of cash flows. So, if there’s a quarter where the market’s down, but you still got paid, six times that quarter, then you bought a lot of shares when the market was down.
[00:06:55]And, then when the market rebounded, your performance is going to look better than, say, a time weighted return. So, if you want an honest look when you’re evaluating your portfolio compared to a benchmark, you’re going to want to use the time weighted return.
[00:08:11]So, back to the fact that in 23 the market did well and in 24 the market did well. Most people don’t complain when their portfolios are going up, right? But what does that mean for us? That we’ve had several years of pretty decent market returns. You know, I’m going to tell this story because I think illustrates the point here. So, you know, the other week I was flying the Cirrus an instrument training flight. And the weather was great for instruments, by the way. I got a lot of actual that flight. So we hit 600 feet. Caps is alive. Turn the autopilot on. Controller gives us the cruising altitude. So we’re climbing and we enter the base of the clouds and boom, right? We hit a pocket.The plane kind of drops and y’alls to the right. I expect a bump when I go into the clouds, but that caught me off guard. Okay. I was a little surprised there and I was watching the autopilot cause I wanted to see, like, is it going to disconnect? Is it going to hold?
[00:09:08]Am I going to have to start hand flying it? And during that jolt, I actually, so plane goes down, I go up. We were in the middle of a climb. I hit my head on the top of the ceiling. Okay? And, so after things stabilized. My hands just kind of instinctively came back to the seatbelt and kind of like cinched it down, you know, the shoulder harnesses and, I had two of my kids in
the back and I said, hey guys, you know, you might want to tighten your seatbelt up it could be a bumpy ride. You know, we had the weather up on the MFD and it was just yellow, right? We were going to Charleston. It was yellow from, Charlotte to the coast. And so what’s my point during good market years when the portfolios are rising, times are good and the next downturn could happen. Right? Catch you by surprise. Okay, just like that jolt there caught me by surprise, now I’m not saying that we’re on the brink of a recession or anything like that. In fact quite frankly, there’s a lot of optimism for economic growth, you know we’ve got a business friendly president with favorable tax policies that actually cares how the market responds to his initiatives so, you’ve got that on one hand, but on the other hand, there are a lot of moving parts to our economy.
[00:10:13]Okay? And quite frankly, a lot of times when you enter a recession or enter a downturn, it may not be because of what’s, you know, the policies that are being implemented right now. It’s policies that have been implemented some time ago and that are working their way through the system. So I think that leads us to the question, what should you do? Markets have been great. Portfolios have been increasing in value. What should you do? Number one, you want to make sure that the risk that you’re carrying your portfolio. It meets your comfort level and it’s appropriate for the goals that you’ve set. and I think that that is the biggest thing. And, actually I spent a lot of time talking with clients about making sure that the risk tolerance matches the risk capacity. And then the portfolio is being true to both of those and, you know, rising markets by default. It means that the portfolio is going to need to be realigned. So what do I mean by that? If you set up certain allocations of large cap, mid cap, or small cap, all of those don’t grow at the same rate. You’re going to need to do some rebalancing. Each of those asset classes has a different risk profile.
[00:11:14]If you’ve got some equities and then some bonds or some fixed income, I would be extraordinarily surprised. If your equity position did not pull away from the percentage that you had set it originally, and if your bond position did not shrink from a percentage basis, right? That’s just what rising markets do and so, what you can do is you can rebalance that and bring that back in line with the risk profile that you set up initially. I’ll tell you last year we did a decent amount of rebalancing for clients because of this very fact, right? Markets have been up. What we do, we locked in the gains and if you’re rebalancing in a retirement account, there are no taxes to pay for the moves that you make. You know, as long as you’re not pulling the money out. So, make sure you pay attention. Don’t fall asleep at the wheel there. And pay attention to how the risk profile of your account has changed in a rising market. The opposite is true, by the way but that’s not our reality, so we’re not really talking too much about it. But in down markets, the risk profile also changes, and I
think depending on your personal risk tolerance, it can take some courage to say, hey, you know what? The equities have dropped by a decent percentage, and it’s time to put more into what has fallen and that’s the way to do it.
[00:12:30]So the first thing is, look at your portfolio itself to see what risk changes you need to make. The second thing that you can do is just make sure that your money is segregated appropriately on a timeline of when you’re going to need it. So, if you need these dollars in less than five years, and you’re going to use them for a lump sum and that’s, that’s where it drives all the difference. Say, we’re looking for a house down payment or some other goal where we need the money in a lump sum, we probably don’t want much market exposure. We probably don’t have much market exposure in that case. However, if it’s going to be 5 to 8 years and we need the money in a lump sum, then maybe we’re looking for a balanced portfolio. Right? So we’re definitely interested in doing more than inflation, but it’s okay if there’s some market risk in the intermediate term because we expect the market to go up and to the right, during that time frame And then if you don’t need the money for more than 10 years but, let’s say you need it in a lump sum then we might be more comfortable with risk on.
[00:13:29]And the reason I stress lump sum so much is because this strategy is different than say, when you’re coming in for retirement. So you’re 65, of course, all your money’s not going to be in cash because God willing, you need that portfolio to support you for another 20 to 25 years. Okay? And so kind of tweak the withdrawal strategy a little bit differently for retirement, which is a very long time horizon of withdrawals versus I need the money in a lump sum. So think about that. When do I need the money? And then how should it be invested or not invested, which is an active choice to make that based off when I need it. So, I wanted to mention that just because we’ve had a couple of years of really good market conditions. We haven’t had an extended period of down markets when 22 came and went. But it’s not like, 2007 to 2009, where you really tested your patience with your investment strategy, right, during those years. So, just make sure that you’re keeping an eye on your risk there after these excellent, two excellent years of market returns.
[00:14:31]I want to switch gears now. And talk about what we’re looking forward to. And, I know particularly what I’m looking forward to this year. Is, I want to see how this administration’s tax policy is going to shape up. Okay, we all know that the Tax Cuts and Jobs Act is set to expire at the end of 2025. And for years I’ve been talking to clients about this. and say, hey, we got to prepare for this. But, you’ll remember that in 2017, it was President Trump that put these tax policies in place. So although they’re set to expire or sunset, as we say are they going to go back to pre 2017 levels? Probably not. I think very good
indications that, you know, revert 100 percent back. Okay? And, in fact, I think that whatever the tax policy looks like, we could reasonably expect it to be favorable for a little while longer. And, so what this does is it gives you more time to implement a tax strategy. That’s going to leave more of your hard earned money in your pockets. Right? Because, I think the long term projection for income tax in this country is probably that they’re going higher. Okay? Because there are historically lows right now, and the country needs the revenue none of that is a secret.
[00:15:46]I mean anybody who keeps up with economic policy or monetary policy like that, none of this is a secret. And, so we welcome more time, particularly if you make, you know, $400,000 a year or more. Oh, your investable assets are over 2 million. You are most certainly interested in how you can use some additional time to make sure that you keep more of what you’ve earned, so definitely looking at tax policy this year, I expect to be talking about it a lot, particularly as things heat up and you know how that applies to you the pilot at home that’s flying and listening to the show and tuning in for ideas on how you can implement this, right? The other thing is estate planning changes are scheduled to revert back. So we’re going to keep an eye on that as well to see where that settles. So guys, super excited that you joined me, new season. New name, new art on this show. So excited for all the things that we’re going to discuss and thanks for joining this episode of pilots portfolio.We’ll see you on the next one.
[00:16:49]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 buddy. 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.