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FEFP: Managing Retirement Accounts During Volatile Times (EP27)

When the market becomes volatile, it can put a damper on years of otherwise diligent retirement planning and create anxiety around when and how retirement will still be possible. With proper financial planning help and experienced planners, your nest egg can be protected from the inevitable volatility of the market. So, how can you ensure your retirement funds are safe? In this episode, Michael, John, and Tommy are joined by Jeff Hybiak, the Chief Investment Officer at SEM Wealth Management, to discuss the keys to successfully managing retirement accounts during volatile times.

Listen in as Jeff explains what it means to have a data-driven approach to finances, as well as why your portfolio should be sustainable during good times and bad. You will learn why you should never let your emotions dictate your response to the market, how to ensure your investments are customized to your financial plan, and what we can expect to happen in the market as we enter the new year.

Listen to the full episode here:

What you will learn:

  • What it means to have a data driven approach. (4:00)
  • What an all-weather portfolio is and why it is essential to portfolio success. (6:15)
  • Why we feel losses so much more than gains. (8:30)
  • The importance of focusing on what you can control. (13:10)
  • What you need to know about lifecycle funds. (16:30)
  • What federal employees can expect as we enter 2023. (24:45)
  • How to ready yourself for a potential continuation of the market downturn. (30:00)
  • The importance of framing your expectations appropriately. (32:00)

Ideas worth sharing:

“Behind every point in your investments, there are humans behind them making decisions, which means there is data there that we can use.” - Jeff Hybiak

“We experience loss at twice the rate that we experience gains.” - Jeff Hybiak

“You should have an all-weather portfolio.” - Mason & Associates, LLC  

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.

Michael Mason: Welcome to the Federal Employee Financial Planning Podcast, hosted by Michael Mason, Certified Financial Planner; John Mason, Certified Financial Planner; Tommy Blackburn, CFP, and also Certified Public Accountant.

Mason & Associates have over three decades of experience helping federal employees with their financial plans.

This episode, Managing Retirement Accounts During Volatile Times. We've got a special guest; John, why don't you go ahead and introduce our special guest?

John Mason: Yeah, we're super excited. Today, we have Jeff Hybiak, CFA and Chief Investment Officer of SEM Wealth Management.

So, many of you have been listening to this podcast since we launched back in January of 2022. And as you’ll begin to learn over these 22 episodes that are currently available, we focus most of our time on financial planning.

And as financial planners, what we do is not only federal employee benefits, tax planning, retirement planning, social security, estate, and what have you. Part of the service that we offer to our clients is investment management, and we've never really talked about how we manage client portfolios.

So, financial planning and investment advice is what we do at Mason & Associates. So, tonight, or on this podcast, we have Jeff Hybiak, CFA and CIO at SEM Wealth Management.

Jeff has been managing money since 1998 with the co-founder of SEM, Rick Gage. Jeff and SEM help us manage our client portfolios as our sub-advisor. And effectively, that relationship looks like this; we work together to design portfolios for our clients that correspond directly to that financial plan need.

So, for example, if somebody needs a moderately aggressive portfolio, we work with Jeff to implement that for everybody that needs moderately aggressive or moderately conservative or what have you. So, each investment plan is tailored to a client specific financial plan.

And Jeff, we're really excited to have you. And I just also want to say that we personally, I think, everybody in this room, believes we serve our collective clients the best when we do what we do best.

And we do what we do best when we control the things we can control, which is financial planning, tax planning, and we allow you to help on the investment management side, and that's where you're focusing all your time. So, welcome to the podcast.

Jeff Hybiak: Yeah, thanks for having me. I've enjoyed all the episodes so far, so I'm glad to be a part.

John Mason: Jeff, have you ever done a podcast before?

Jeff Hybiak: Yeah. We were early in the game with another financial advisor. We called it Sunshine Fridays, where I talked about the markets and some of the things that were happening for the week.

John Mason: And we do joke internally about Mr. Sunshine and sometimes, your economic outlooks are not always the most positive.

But one of the things I wrote down preparing for this is one of the reasons we love working with you and your team is together, the four of us can sit around a table and talk about why things are good, why things are bad, what companies are going to go bankrupt. We should short the S&P or what have you.

But none of the investment decisions we're making for our clients are based on emotions, they’re all data-driven. So, maybe you can tell a little bit to our listeners about what it means to have a data-driven approach.

And if you're curious as a listener, who Jeff is, who SEM is, you can find them at

Jeff Hybiak: Yeah, absolutely. And I think one of the interesting things is my partner, Rick Gage, is an engineer by training and we have a head of research who has a PhD in electrical engineering.

And there might be a lot of engineering jokes that people have, but one thing that they do not like doing is guessing. They like to have the data.

And so, that's really helped me throughout my career in understanding that behind every point in the S&P 500 or whatever investment you're looking at, there are humans behind that making decisions. And that means there's data behind it that we can use.

And one thing we've learned is that our brains can tend to play tricks on us. And there's been a lot of things over the last couple of years if you follow finance, they've talked about behavioral finance, and I think that's a fancy word of just trying to explain how we make decisions.

And all of us, I think if we're honest with ourselves, will make wrong choices when we're dealing with difficult situations. And obviously, with your investments, that's one of the most difficult things that you can try to make decisions on because money is one of the most emotional things that we deal with in our lifetimes.

John Mason: Money is emotional, a year like 2022 can be super hard because every single day, we turn on the news and we're getting bombarded one way or the other with positives or negatives. We're being bombarded with political things right now on TV, so it can be very emotional.

So, as we dive into this episode, Managing Retirement or Investment Accounts During Periods of Volatility, we also wanted to highlight the stock market's always volatile. So, this is not only applicable to how do we manage assets, guys, when the market's going down, it's also how do we manage assets when things are going up.

So, understanding that there are good times and there are bad times, but it's all volatility. And one of the things that we hope that we convey throughout this episode is that you should have an all-weather portfolio.

And what that means, Mike, is — maybe you can share what we mean by that. What is an all-weather portfolio for our clients?

Michael Mason: And I think it's important, John, that folks know this is the 1st of November 2022 recording this. We just came off maybe one of the best Octobers ever. So, to your point, the market can be volatile up and down.

An all-weather portfolio is one that is designed to work with your retirement plan. It's one that you're happy with in good times and bad that you're not tweaking, thinking that you're going to be able to time this market.

So, an all-weather portfolio starts with having a solid financial plan so that when the market's down, you're down exactly what you expected. And when the market's up, you're not disappointed. Your buddy that comes and tells you, “Hey, I made X% and a hundred percent two times the Nasdaq,” you're not jumping into a hundred percent two times Nasdaq.

John Mason: Well, we've spent the collective group here, I mean, we have tons of experience doing this for a living. Jeff since ‘98, you since 1987, Tommy and I since 2010. So, decades and decades of experience trying to convey this message.

So, if we put some numbers to it, an all-weather portfolio to me, means if I'm in 50% stock, 50% bond, generally speaking, if the S&P's up 10, I should expect to be up about 5. And if the S&P's down 10, I should expect to be down about 5.

And I should be in a portfolio where I'm always happy because those returns are in line with my expectations. And it seems, and Jeff, I know you have data on this; people respond much differently to losses.

So, if the S&P’s down 20, and they're down 10, they did poorly. But if the S&P’s up 20 and they're up 18, they're not happy. So, it's just like trying to figure out the emotional side behind gains and losses, and maybe you can touch on that a little bit.

Jeff Hybiak: Yeah, absolutely. I think one of the easiest things to understand is, if you just think of your own personal life, if somebody compliments you, that might make you feel better. And you might remember that for maybe a day, maybe two days.

But if somebody insults you, you might remember that for weeks, months, or the rest of your life. And what psychologists have found is that they identified emotional units and they found that in all aspects of life, we've experienced loss at twice the rate that we experience gains.

What that means is, we will remember all the times we lost money investing and then that will cloud our decision-making. That means when we're losing money, time actually slows down. And it feels like these losses are lasting a lot longer than they truly are in the whole scheme of things.

Mike and I remember the financial crisis of 2008, it was only one and a half years. But if you talk to any investor or advisor who lived through that, they felt like it was 5, 6, 7 years, and people weren't even interested in getting back in the market.

When you and Tommy joined the industry in 2010, a lot of people had to be convinced to move out the cash accounts. And this was a year and a half after the market had bottomed because of the pain of those losses.

Michael Mason: Yeah, many people finally got back in just in time for this one.

Tommy Blackburn: For the next one.

Michael Mason: So, it gets difficult.

John Mason: And managing assets in the time during periods of volatility up or down, what we're hoping to do with our clients is one, have that financial plan that shows us how we need to be invested, but two, make sure that they're not ever looking to make a change.

So, as markets are doing well, we hope that we're getting enough upside that we're not trying to get more aggressive as the market's going up. Conversely, as the market's going down, the last thing we want is clients fleeing their portfolio and going to more conservative, or going to the G fund.

So, it's a delicate balance, guys, of trying to make sure that clients are happy and getting those expected returns but not fleeing. We don't want the tail wagging the dog, we want the dog wagging the tail. And unfortunately, people don't often get that right, which is why I think Tommy, Vanguard did a study, Morningstar's done a study on this.

Maybe you can highlight a little bit from those studies why we tend to see difference between individual investors and what the market actually does.

Tommy Blackburn: Sure. So, we saw Morningstar has that data and I think the other one is DALBAR —Jeff's nodding his head, I got that one correct.

And what they saw is I think on average, the stock market may return say 7% and the average investor is getting three, or at least that's what the Morningstar report we looked at rough numbers, what it suggested.

So, what this means is that, if you would have rode that investment, been in that investment the entire time, you would've got 7%. But people's behavior of getting in and out of the market, allowing their emotions most likely to dictate their investment decisions, means they're not capturing that full return from the market. So, that's that behavior gap that's referenced.

And when you mentioned, that's why we really think the financial plan is such a critical starting piece to an investment strategy because what are our goals and objectives? What's our cash flow strategy? How do we link all this up?

Now, we know the portfolio we need to have, and I think gentlemen, when we go through financial plans and we bring it back to the financial plan, we all see that it gives clients — not that markets up and down are not difficult, but I think coming back to the plan, having an anchor is what usually helps people stay the course with that strategy. That should be ideally put in place before we find ourselves in difficult times.

John Mason: And we don't want to overgeneralize, Tommy, but maybe we're going to a little bit right now on this podcast episode, is that we've been working with federal employees for three or four decades now.

And the common theme for three or four decades, guys, has been federal employees retire, they live on their pension, they live on their social security and other guaranteed income, and investment withdrawals are discretionary. They are for fun trips, they are for vacations.

And frankly, many times they're doing these things without touching their investments. So, yes, the market is down this year, but Tommy, going back to your point, we're getting a 5.9% COLA last year, an 8% COLA this year.

Federal employees have most of their, if not all of their guaranteed income, paying all of their expenses. So, what's happening in the investment portfolio isn't driving, “Is my financial plan successful or not successful? Will I be able to stay retired? Will I be able to do this for the next 30 years?” Their pensions are covering that.

And I think when we can put that into perspective, it really de-emphasizes the doom and gloom or even to a certain extent, the euphoria that you get from investments doing well. Because really, it doesn't matter as much for federal employees.

Tommy Blackburn: Absolutely true. And even for when it does matter, this is why we stress-test, why we do things to make sure that this strategy is going to work. And we always try to shed light on the positive.

So, this saying I always think of is when life gives you lemons, you make lemonade. So, that's why in down markets, we look at things, what can control? Currently I bonds have been a nice place to park some cash, maybe we do some Roth conversion.

So, all of these things — maybe we do some rebalancing; just what can we control, and let's focus on that.

Michael Mason: I'd like to jump in for a second and just say remember, managing your portfolio in times of volatility, Tommy, you used the 7% market return and the 3 or 4% average investor return, that's the average investor that doesn't have a financial planner in the game.

And with that financial planner, there's been study after study, and you can Google it. Vanguard the value of a financial advisor in your world, you can pick up that extra 3 or 4% because you won't do all the wrong things at all the right times.

And we wanted to talk a little bit about the Thrift Savings Plan. It's a low-cost investment vehicle, but they do some things that kind of help people that don't have financial plans make some maybe not the best decisions.

One of the ones we've talked about over the years is these lifecycle funds where they have kind of a static allocation where regardless of what's happening, you need to have X% in small cap and X% in international. Well, Jeff, your portfolios have pretty much not been an international. John, go ahead and then we’ll go back to Jeff.

John Mason: So, I think you just teed it up perfectly for the last couple topics for the podcast, is one, we're going to talk about the TSP lifecycle portfolio. So, that's a topic we're going to hit on. The last leg down of the bear market’s, typically the worst and like a little bit of an outlook there.

And then three, we're going to hit on the G fund. So, those are three remaining topics that we want to cover on this episode. And I also want to make sure, because I said something that could have been taken maybe the wrong way.

It's not that TSP investments are insignificant. We see million, 2 million, 500,000, it's what you've saved. And when that is up, it is happy. When it is down, it is sad. We're not making light of that, and we're not telling you that your investments don't matter, or we don't care that you're down. That's not the message.

The message is you being down is different than somebody that has to rely on their investments to drive a hundred percent of their retirement income. It's different. It is your money, you've spent a lifetime saving, we take that very seriously, but you still have most of, if not all of your needs covered in that guaranteed pension.

So, Jeff, let's talk about TSP, lifecycle portfolios, some of the changes that were made, and why we don't typically recommend those.

Jeff Hybiak: Yeah, I mean first and foremost is, the lifecycle funds by design were put there because people make shortcuts and they needed help figuring out, well, how should I invest my money?

And one of the things people typically do is they look at the recent performance and they kind of stack a portfolio that way. So, retirement plans in general said, well, we need lifecycle funds.

The problem is, as you get older, you're always selling the money you have in stocks when that might not be the best thing. So, when the market's down 20% for the year, the last thing you want to do is sell stocks. You actually want to sell things that are positive or doing less bad so that you can buy more of the stock market, and the lifecycle funds just aren't designed to do that.

Tommy Blackburn: And another thing we see with those lifecycle funds, one, that forced rebalancing and doing things proportionately there as you talk maybe don't make sense, but you know, they assigned a number to them, corresponding to a year.

Usually, the idea there is that, hey, you plan to retire in 2040, so this is what we think an allocation for somebody retiring that year should look like based on your age and so forth.

But that's not really customized to you at all. And as John said, we can see people accumulate quite a bit of their life savings inside of a TSP or even in another retirement plan. They all have these lifecycle funds, these target date funds we're referring to.

A million dollars allocated just how something's been predetermined, that is not customized to you. Your financial plan may call for a very different allocation. So, that's why sometimes I think of them as starter funds, like it's okay maybe to start with, to grow, get some accumulation going.

But kind of once you get a decent balance in there, you want it to be customized to your situation, your financial plan.

John Mason: One of the issues I have with it, one benefit of the TSP, L portfolios or lifecycle is, instead of just auto enrolling people in the G fund with no stock exposure or at least auto enrolling people into the CSI GNF and giving them a little taste of everything.

So, for those young professionals, it's not the worst deal in town, but Mike, think about retirement. Like you're a pretty young guy, 61, 62-years-old, and federal employees retire at 57. So, for a 57-year-old, should they have been in the L income portfolio that had 75% G fund give or take at 57-years-old versus-

Michael Mason: For a 30-year retirement?

John Mason: For a 30 or 40-year retirement versus Mike Mason retired at 80. Should that person be in the L income? It just doesn't make sense.

Michael Mason: Well, let's make it even clearer. At 57, you're probably retiring and you're getting your FERS and your FERS supplement, and you're not thinking you're going to take your TSP money until it's mandated at 72 or 73-years-old.

So, putting it into an L income portfolio just doesn't make sense. And I can tell you, unfortunately, in years like this where it's a political year and a down year, you get a whole bunch of people helping you make these mistakes.

Because I remember Kramer back in early 2009 on CNBC making this statement, “If you need your money in the next year or two, well, this is not your stock market.”

Well, Jeff, people can accept this in two different ways. If it's the person that you were telling me about that's in college, well, they need their money, don't they?

Jeff Hybiak: Yeah, absolutely. And that's the problem with any of these strategies, is they don't count when you are personally going to take money out.

Michael Mason: Yeah. And I might hear it — if I hear that, I'm going to need it, which means I'm going to spend it in four years for college, so I need it now. But if I'm to spend it over 40 years, that doesn't mean I get out of the market.

But when you have people with a media voice saying things like your 401(k) is now a 301(k), well guess what? Your 401(k) January 1 of 2020 is higher than … it’s probably higher today than it was January 1 of 2020 unless you'd really made some mistakes.

You added money to it, and the stock market’s up over the last two years. So, don't cherry pick your losses, and don't let the media help you make a bad decision because it's politically expedient to talk about your 401(k).

Tommy Blackburn: And if I may, as I think about it, I wish I knew the episode off the top of my head. We said they're not talking to you and the lifecycle fund being customized to you and John, you saying we're not making light of your situation. We're not.

It is that your investment strategy is very different based on your situation. And this is the Federal Employee Financial Planning Podcast, and they usually have a different investment strategy than everybody else. So, they're not talking to you — maybe check that episode out if you haven't heard it. But I think that's kind of the theme here as well.

John Mason: And they're not talking to you, I know we used to say this in seminars, but the TSP lifecycle portfolios look exactly like the Vanguard target date lifecycle portfolios, which look exactly like the Fidelity and exactly like the BlackRock. But what's the problem with that?

Federal employees have pensions. All these other lifecycle portfolios that look exactly like yours are for people that don't have pensions. How does that make sense?

So, a couple other things here on these lifecycle funds is there are different points in your life when you retire, Jeff, that we're driving income from the portfolio and our risk profile, or our needs may change.

So, for instance, maybe I'm 57, 58, 59, I'm just retiring, I'm pretty scared and I'm driving income because I'm delaying social security. That's phase one. Then phase two may be, I've turned on social security, and I don't need this anymore.

And then phase three may be, I really, really, really don't need this. Let's see how big I can grow it for the next generation. How does a lifecycle fund fit that? And what would you and SEM be doing, both helping Mason clients as well as helping your direct clients?

Jeff Hybiak: Yeah, absolutely. And I think this ties into what Tommy said about it has to fit your personal financial situation. And I always tell people that I'm working with this — let me help you create a lifecycle fund that fits your situation and that's going to be different for everybody.

And at SEM, there's sometimes we say, look, the I fund, the International fund might not even be a good place for the next five years, and maybe it will be the best place to be in the next five years.

But you shouldn't just statically believe that because some fund put it in there, that it's what everybody should do. That's one of the shortcuts that we take as investors is, well, I heard that International is good, therefore, I need to have it in my portfolio.

Or even worse International fund or S fund or whatever it might be, performed really well over the last 3, 6, 9, 12 months. So, I'm going to put a bunch of my money on that one. And we see that happen a lot.

So, the lifecycle funds, like you said, are good starter funds, but not necessarily good as you get closer to that retirement, as that balance starts going up. The rule of thumb I always use is if your contributions for the year are smaller than the total value, you probably need at least some sort of advice on creating your own fund.

John Mason: That's awesome. And Jeff, as we think about this, I like to think that clients may go through three phases. They’re going to be their most conservative probably the year they retire. That's when they're most scared, that's when they're first taking those withdrawals.

So, we may scale back the risk a little bit, and then we could see over time as people depend less and less on their portfolio, and we have less and less years of withdrawals, actually see that risk increasing again.

And that's to your point, you're not getting that in a lifecycle fund. You actually need professional advice. So, quick other updates and then we're going to transition to the next topic.

It was like two years ago guys where TSP arbitrarily increased the risk of the lifecycle funds over a period of time, and they added more international exposure. This is completely counter to hindsight being 2020, maybe we didn't want to get more aggressive, and hindsight being 2020, we probably didn't want to add more international when they did that.

So, relying on a TSP board to make your financial investment decisions for you is probably not the way to go.

So, next topic, the second or third leg down of a bear market, Jeff, in your expert opinion, we talked about this all day today with you. Where are we in this current market cycle and what should federal employees expect as we go into this maybe end of year, beginning of next year?

Jeff Hybiak: Yeah, very good question. And just as Mike pointed out, it's the first day of November of 2022. So, whenever you're listening to this; this is our thought process then, but this is applicable to all markets because markets move in cycles and we're going to be here again five, seven years from now.

It's important to understand when the market first starts going down, which we saw in January, investors fail to adapt to new information, everybody thought everything was great, they don't even realize anything's wrong. But then the market starts going down, people start to write that off of, “Oh, this is just a correction, it's going to come back.”

As you guys said in your other podcast, they're not talking to you, the media's going to be very loud. Then people start to get a little bit worried, and you have that second leg down, which is what I believe we went through over the spring and summer.

And you're going to have fits of big rallies and then a test of new lows because then everybody starts to look out as well, maybe things are getting bad.

In the third leg down, you actually start with a nice rally where everybody says things aren't as bad as I thought they were going to be. And you get this kind of enthusiasm building back up, well, maybe it's not going to be bad this last time.

And that's what we're seeing right now, is people are looking at 2008, 2009 and saying, “Well, no banks are failing, people's balance sheets are better off, et cetera, et cetera.” Or they look at the tech bubble and they say, “Well, tech stocks aren't as overvalued, therefore, we're not going to be as bad.”

That's actually hindsight bias on the downside because people are ignoring what are some other things that could go wrong. And in this case, what we're always worried about is a recessionary bear market.

Despite debates we had this morning about whether we're in a recession, despite what different news organizations say, the data says we're not, and there's actually a board of people who determine whether it's a recession, and they're apolitical.

What we're worried about is when jobs decline and spending declines, that's a recession. When that happens, the market participants, investors will really begin to panic because now — remember right now, they're thinking that hey, maybe it's not going to be as bad.

Things start getting real when you see your neighbors getting laid off, maybe you're getting laid off, earnings are declining, things are getting tight. That is that last scary leg down, what we call capitulation where everybody hates stocks.

That statistic Tommy was talking about where how does the average investor not keep up with the long-term performance? That's because they sell at the worst point, and that's when the market's going down.

Tommy Blackburn: It's also a saying, I think that comes to mind that we were talking about before we started recording, is in the short-term, the markets are our voting machines. So, very much driven by sentiment as Jeff was discussing with us, and long-term, they're weighing machines.

That's when it's more data based, how's the economy? How are companies actually doing versus just what is our sentiment on the up or the down? So, short-term, voting machine, long-term, weighing machine.

Jeff Hybiak: Absolutely. And we have a mug in our office that has a famous quote from a hedge fund manager that says “The stock market is a story of cycles of overreactions in both directions.”

So, we'll just say on average, depending on your look back period, about 10% is the average return for the S&P 500 over very long periods of time. It's very rare it hits 10%. You get cycles where it might average 15% for seven or eight years, but then you go through a big correction because it was not possible for that economy to keep up with what the market was trying to do.

So, when people start feeling bad, they start selling and then it just kind of becomes this vicious cycle downward.

John Mason: We're really excited and this is just a little bit of a glimpse into Mason & Associates and how we work with our clients. But we're doing a webinar, basically a client event and Jeff's going to be on that too. Thank you, Jeff, for being there.

And what we've started to see is a little bit of that concern creeping in. We're 11 months into this market that we haven't seen in quite some time, and we're starting to get the sense that our clients are starting to get a little bit on edge, they're starting to get a little bit antsy, and we wanted to get in front of that.

And this is the type of stuff, like financial planners, the advice generally speaking, stay the course. So, you call your financial planner right now, “Joe, I'm down,” Joe's going to tell you to stay the course.

We're saying the same thing too. The investment strategy you had in January, if it was aligned with the financial plan, is still good. That doesn't mean there may not be some changes along the way, but this is a tough time.

We're taking the opportunity to get in front of our clients, present, do these webinars to make sure that clients are confident, not only in their financial plan, but their investment plan.

Mike, how are we preparing clients for this? Because we've been talking all year that we could be in a recession, that this could be a one-year deal, but let's plan for two. So, how are we educating our clients, our federal employees on how to get ready for this, embrace for this knowing that we only may be halfway through?

Michael Mason: Yeah, when we think about it, and you used 11 months, we're 11 months into this, and I would like to think maybe we're 20 months into it. I'd like to think people's world was rocked march of 2020 when COVID hit, and the market dropped.

And imagine you took your money out then, and then 2021, it came back up and you finally decided to get back in. So, we're helping them understand that those kind of herky-jerky moves can cost you a big, big swing. Our clients don't make those herky-jerky moves.

What we do with our clients, one, is reemphasize that the plan has looked at a thousand scenarios over a 30-year horizon that their income, their biggest source of income and their biggest assets, their pension, and over two years, once January 1 gets here, they'll have had 14 to 15% pay raises on social security, CSRS, and FERS.

So, it gets easier and easier to help them stay the course and understand that yes, we may go down 10% from here. Well, guess what? You just went up 10% over the last month. So, bouncing in and out is difficult. Our clients typically don't do that.

Jeff Hybiak: I was just going to add, the most important thing you keep hitting on without saying it specifically, is you need to meet expectations. If you expect it to go down another 17/22% and it doesn't, that's great. Tommy's saying, we celebrate.

But if you're ready for that and it happens and you know that your plan can handle it, it's literally a non-event. It's a normal part of investing.

So, your expectations are key. And too many people I think get into the market thinking that they can't lose money because they're recent history said it doesn't lose money. So, you've got to frame your expectations properly.

Michael Mason: Or they get to the point of, well, it's going to be different this time. Well, let me tell you, the only way it's different this time is everything falls apart because if our markets don't bounce back like they have, statistically, over time, then America's not bouncing back. And then we've got bigger problems than your stock market is down.

John Mason: Well, that sounds like something right out of Armageddon, the scariest environment imaginable.

Tommy Blackburn: Right, yeah. I don't know if anybody has a playbook for that scenario you're talking about.

Jeff Hybiak: That's a whole other podcast that I wouldn't mind hosting.

Tommy Blackburn: And I guess as I was thinking here, maybe just to repeat a little bit, but we want to have that strategy in place and the strategy, to Jeff's point, if the expectations were correct, the strategy was correct. The strategy stays the same.

Doesn't mean that nothing is happening inside of that strategy. So, there are things happening within the portfolio based upon what we’re being dealt, but this strategy has stayed the same. There have been changes made.

And the other thing I think we educate clients on, which I think we're all saying too, is when you get into these volatile markets, this is when you can really cause some damage to your financial plan if you don't stick with the strategy because it can move very quick in either direction.

And if you get it wrong, if you don't have the strategy in place, so it can be pretty detrimental long-term.

John Mason: Well, Tommy, you said it perfectly. Our clients are not invested. We use, we have an active philosophy at Mason & Associates, so it's long-term in nature, but we make active tactical adjustments, Jeff, with your help and our clients are not invested the same way they were in January.

And sometimes, just knowing that we were able to dial back some risk and make some adjustments and shorten duration and what have you, we're not invested the same way.

And seeing that we have that activity has really helped clients. So, showing that not going to cash across the board, but making some tweaks.

And then we had breakfast the other day with a dear friend, and we were just talking like so much of our job, Mike, is putting things into perspective.

And you mentioned that earlier when you said your portfolio is the same spot it was in the fall of 2020. You gave back one year of gains. Let's put that into perspective. Let's zoom out and let's really talk about that.

I have a client who just recently finished building a house and when we did the plans for it, interest rates were 3.5%. They just closed at 6.5. Their cost-of-living adjustments on their federal pension, took care of it. They're out of pocket the exact same amount had they not gotten any COLAs, it would've closed at 3.5.

So, taking it and putting things into perspective, last note here, which I think all of you agree with, is if a federal employee, a client of ours was to call in and say, “Mike, John, Tommy, Ken, Ben, I'm really worried …” (and Jeff, I know you do this too), the advice is not going to be open a bottle of wine and don't look at your statement.

It's going to be, “We planned for this, we were ready for this, we were all ready for this. What has changed in your life that you are now concerned? Let's talk about why you're feeling like you need to make a change. Was there a terminal illness? Is there a diagnosis? Are you going through a divorce? Is something happening with the kids? What are the reasons that you're calling today? Let's talk about that.”

Because the ultimate advice, otherwise, will probably be stay the course, but we want to figure out why you're actually making this call today.

Jeff Hybiak: Yeah, and I just visited Liberty University and talked to a bunch of college students, and thankfully, a lot of them are getting psychology minors now.

I think our role as financial advisors is a lot of time to just listen. So, if you're feeling concerned, that's what you guys at Mason & Associates do, is let's just talk about your feelings.

What's changed to make you not want to stick with the plan and then circle back to the root causes of what's happening.

John Mason: So, a few seconds, minutes left in this podcast. I think maybe let's just touch a little bit on the G fund, and I've always kind of joked that this is G for guaranteed to lose money fund.

But where do we see the G fund today? Where do we see it in the future? And what's maybe kind of like a tactical or an immediate opportunity that we could see on the horizon for federal employees?

Jeff Hybiak: Yeah, I'll talk first just because again, going back to how a lot of times on the TSP platform you pick is based on performance, obviously, when you look at this in November 2022, that's your best performing asset.

Please, please, please understand that when assets outperform, they tend to underperform. And the mechanisms behind the G fund, if what we believe is true is that we go into a recession, but sometime in 2023 we climb out of it, the G fund is likely to be your lowest performer on the whole platform. So, be careful with that. I'll leave the rest of you guys.

Michael Mason: Yeah, I would see an opportunity if you're 59 and a half or you're about to retire, and you move to the G fund, many people do that don't have Mason & Associates in their game.

Here's an opportunity to say I didn't go down, maybe I made 2%. And there's bonds that Jeff, high yield bonds is an interesting option. There's an opportunity to dollar cost average back into an investment with the money managers.

So, it's a unique opportunity if you made a good call. It's always tough to get back in. If you made a good call and you got out-

Tommy Blackburn: You got to be right twice, and we don't even know if you're right the first time, but maybe we can be right the second time.

To me, brings me back to we want a dynamic portfolio, not just all of one flavor to it being the G fund. And the other thing, John, you mentioned guaranteed to lose money, and I just wanted to touch on that because I believe what we're saying there is yes, it doesn't go down in value, but inflation as we all have experienced is real.

So, there's no statement risk there. You are not keeping pace with inflation. We do not expect that you will keep pace with inflation in that fund over a long period of time either. So, maybe you don't see negative values on the piece of paper, but it's not keeping up with inflation.

John Mason: And we've helped clients allocate money to the G fund. I don't think we've ever recommended a hundred percent G fund for a long-term allocation, but part of our typical strategic allocation will say 60% stock, 40% bonds, and then a sizable portion of that bond is going to be G because it doesn't have any statement risk.

We may be considering flipping that and adding more to F, less to G, but we want to have that active management on the bond side. So, G fund has been a safe haven this year.

You want to think about maybe if you are eligible for 59 and a half transfers, you can do things like Roth conversions and an IRA. You have a lot more asset classes available to you, and maybe a good time through the help of a professional fee only fiduciary financial planner, which means somebody that's on your side that's not going to help you get a 7% commission product and never call you again.

Never — well, I shouldn't say “never.” Be careful about Mike, transferring too much of your TSP because we want to leave our foot in the door in case we ever want to move back.

Michael Mason: Yeah. You may make a bad choice. Maybe you thought this advisor was better than he or she is. As long as you leave money back in TSP, you can always roll the money you rolled out back into the Thrift Savings Plan.

John Mason: Jeff, it's been an absolute pleasure. Thank you so much for being on the podcast.

Jeff Hybiak: Yeah. It flew by.

John Mason: It's unbelievable. I think we always set out for 25 or 30 minutes. I don't know how long this one went, but I know it went longer. But we're excited. We're Mason & Associates,

Thank you. This has been another episode of the Federal Employee Financial Planning Podcast. Thank you for listening. Thank you for the email questions we're receiving.

Remember, your investment strategy should coordinate with your financial plan. It should be well-thought out and you should be happy in good times and bad. At no time should you be thinking “I need to make a change” if it's coordinating with your financial plan.

Remember, control the things you can control, and your largest asset is not your house, it's not your Thrift Savings Plan – it's those federal employee pensions.

The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.

We encourage you to consult with the office of personnel management and one or more professional advisors before taking any action based on the information presented.