Micah Shilanski (00:00)
Welcome back to the Plan your federal retirement podcast. I’m your cohost, Micah Shilanski, and we’re gonna talk today about a question that is a timeless question that we get. It’s almost regardless of season, we get this question. And it’s something that on the surface, when you hear this, you’re like, exactly, that’s 100 % what I wanna do. But in reality, it just doesn’t work that way. And that strategy, that theory, that question, if you follow it through, could cost you.

Boy, I have one example that’s cost hundreds of thousands of dollars by following this example. So we want to warn you about that. We want to talk to you about some tips from our experience in working through this and what you really need to do. So hopefully that’s tantalizing enough. You’re going to listen to us for a little bit. And to do that, I invited one of our fellow advisors on the podcast with me, Luke Eberly. Luke, thanks for joining us, bud. Yeah.

Luke Eberly (00:49)
Yeah. Happy to be here.

Micah Shilanski (00:50)
So we started, you know, kind of pre-gaming this and kind of looking at this question.

And this is a question I got to say, and you can push back on me if you disagree with this, that I do say is timeless. We get this almost regardless of market season, but it’s a really good warning. It’s a really good warning heads up for us as advisors when we start hearing this in different circumstances. So what’s the question? What’s the comment that we get? It’s you know what, Micah, the markets are up right now. I’m going to wait until the markets fall and then I’m going to.

buy at the bottom and the low, and then I’m gonna make all the money recovery and I won’t lose a penny. Have you ever heard that before, Luke?

Luke Eberly (01:28)
⁓ many times. And right now we were just talking. We both have heard it recently in meetings. I just had a client that they did a transfer of their TSP to an IRA. So it comes over in cash, Micah. And they were like, well, I’ve got this in cash. It was invested with the TSP. Now it’s in cash. Do I wait for the market to fall? Should I just sit on cash? So, yes, this is a timely question. Like you said, I get it in all seasons, but right now

I’m especially hearing it quite a bit actually. There’s worry about an AI crash. There’s worry about the stock market being at an all time high. And rightfully so, maybe some of those concerns could be valid, but it’s the people saying, should I sell everything? Should I sit in cash, wait for it to fall and buy? It’s an interesting question.

Micah Shilanski (02:18)
Yeah, I think it’s a very good question. let’s kind of piece this apart. Actually, it kind of came through for me, Luke, last night, my daughter, when she came home, we were kind of chatting about something. She goes, Hey dad, I was at class and the teacher mentioned that they’re just going to buy low and sell high. And I asked them kind of more what that makes. I know you talk about that. And they said, well, the market’s high. So I sold everything and I’m just waiting and the market’s going to collapse. And then I’m going to buy in so I don’t lose any money and I’m going to make. Now this is

like the conversation that they’re having in schools with high schoolers. So it’s a very interesting comment. was, ha, it’s a very interesting theory, but let’s walk through the reality of that. And then you can come to your own conclusion if you think this is a good idea or not. But just in 2001 alone, just in 2001, there were 70 record high closes in 2001. In 2004, there was 39

record high closes of the stock market that took place. So when you say, hey, the stock market is at an all time high, you are correct. It potentially is. But hasn’t it been at an all time high pretty much for the last decade? I mean, at least, I mean, then you could go back even prior to that. Or look, am I looking at this incorrectly? No.

Luke Eberly (03:33)
I mean, you’re totally correct. I think it’s really interesting. Whatever administration is in power likes to say, the stock market’s at an all time high. But the trend is, like you said, it’s this. It’s a wind. It’s up. Yes, it has ups and downs and dips, but the general trend is up. So of course, you’re going to have new all time highs quite frequently. Even when you do have big dips like a year ago, right? In March, people forget about that.

But that was a quick dip, right? And it was back to an all time high soon after that, right? And even that dip didn’t really dip that far down. If you think about it in the context of waiting and sitting on cash, there’s likelihood that you would miss out on a lot of gains. If you waited a year before that dip, waiting for that dip to happen, you would have had

lost a lot of money by doing so unless you were lucky enough to put everything in cash on in February and people knew something that we didn’t know last year. Sure. You can maybe time that market. Have you ever seen anybody do that though, Micah?

Micah Shilanski (04:48)
So here’s an example of a real clients that came to us and I got to look it up 2015, 2016 time period. In 2008, he saw the, 2007, he saw these accounts going down in value, Record high in 2007, 2008, they started climbing about halfway through the decline, he sold out and then the markets kept going down. And he was like, dude, I crushed it. Lost a little bit, but I’m not even close to what it is.

Markets went through their bottom. I’m going to get this slightly wrong because it’s from memory. But what March of 2009 ish intraday trading somewhere around sixty three hundred on the Dow, something like that. Right. So markets were down low and then they recovered. And he was like, we’re not there yet. We’re not there yet. We’re not there. Then the markets went above where he sold out. Then they went above that. Then they set record highs. Then they recovered and all that. know, in 2015, 2016, 17, when he became a client, he’s been out of the market.

for almost a decade sitting in cash. So he saved like 10, 15 % of his portfolio, absolutely, because he didn’t write it down. But the cost to him, right, he gave up probably doubling his money, hundreds of thousands, in his case millions of dollars, right, it was left on the table because he was sitting in cash during that period in time. So there is a true cost. so whenever someone comes to me, Luke, with this question saying,

I’m going to sell it now because I think we’re at a high and I’m going to wait for the bottom. So it’s OK. Let’s just say we’re at a high just for discussion purposes. What trigger is going to tell you it’s the bottom and when to put the money back in?

Luke Eberly (06:20)
Exactly, exactly. Because they don’t know and rightfully so. When the bottom’s gonna be until the bottom’s already happened and you’re looking at it in hindsight.

Micah Shilanski (06:32)
And if they did know, they’d be on a private island, by the way, right? With yachts and everything else, if you could trade like that. So it’s that aspect that we may get lucky, but just because we got lucky once on a call, that’s not a good strategy for the long term. Now, but this can be painful for people though, when the market goes down. So I’m not saying it doesn’t go down, it goes down all the time, right? The long-term trend is the market goes up. So as the market’s going down, what do you do?

Luke Eberly (06:58)
It’s a great question. Well, I would say number one, do you have, if you’re taking distributions, right? If you’re in retirement, let’s take it from that context. You’re in retirement, you need money from your portfolio. You should have already had cash on the sidelines, things not invested in the stock market that can supplement those living expense needs, those withdrawals. So when the stock market does go down,

You don’t panic. You’ve already prepared for this, right? You’ve got cash on the sidelines. The important thing is that you’re not selling when it goes down, right? You’ve already got this cash on the sidelines. Now that’s if you’re in retirement, I would say, and you’re pulling from there. If you’re somebody that has an extra cash, extra cash sitting on the sidelines waiting to invest, if the stock market goes down, yes, that’s a good time to invest. But otherwise I’d say for the majority of us, it’s life as usual.

Continue on don’t panic don’t sell when that starts to go down and make sure that you have a plan in place For when the market crashes when the market goes down that you have cash on the sidelines You’ve got something on the sides to supplement your living expense needs if you’re withdrawing from your portfolio

Micah Shilanski (08:15)
Luke, really like that. this goes back to kind of our general rule of thumb, right? It’s always different for everybody, but general rule of thumb, any money you need to spend in the next five years doesn’t belong in the stock market. That doesn’t mean you shouldn’t invest it, right? We could talk money market, we talk CDs, we could talk bonds, we could talk something, but I don’t want something with tons and tons of volatility for exactly what you’re saying is when you need Murphy’s law, when I need money, the market will be down, right?

Well, OK, if I have my money separated, though, and I have my long term money in my growth bucket and I got my short term money in CDs, cash money market, the money goes down. Right. That means the growth bucket drops. My CD bucket and cash bucket probably didn’t drop. So it’s OK if I take distributions from there because I’m not selling at a loss, which is what can kill your retirement portfolio is that when it drops down, you start selling at a loss. But it’s even worse than that, because when you go to retire. Well, I should phrase a little differently.

I always tell clients as we’re preparing for retirement, right? And we’re getting a year out being like, Hey, when we go to retire, you’re going to notice a couple of things. It’s going to take you 12 to 24 months to transition company in retirement. And in that period of time, you’re probably going to freak out about your investments in your TSP. And then you go, I’ve been through downturns. I know what this is like, et cetera. I said, look, I know you’ve been through downturns, but you’ve been through downturns where you still had a paycheck coming in. You’ve been through downturns saying mentally, I’m a long-term investor.

You’ve been through downturns where you’re putting money in the market when the market’s going down. Now you’re on the other side of this. Now you’re going through a downturn where you’re not getting a paycheck, where you’re not exactly 100 % a long-term investor because you’re pulling money out. And instead of buying every two weeks, you’re selling every two weeks and having to pull money out. So this can mentally play with you a little bit in retirement. So I love what you’re saying is we need that plan in place. Like what’s your distribution strategy? Not if, but when the market goes down.

Luke Eberly (10:11)
Exactly. Yeah. You know, here’s a good question, Micah. I had a client come to me about a year ago and say ⁓ they did a TSP transfer to their IRA. So now they have a big balance of cash because it comes over in cash, right into their IRA. And so now they’re going to reinvest this, right? That’s the idea. You’re investing in the TSP, but then it comes in cash. And they said about a year ago, this was right after the dip of March.

So this was April, it was a little scary time. Do I wait to invest that amount? What should I do with that? It was close to a million dollars, right? Do you just put it all back in the market? What would your advice be, Micah? And then I’ll say what I said.

Micah Shilanski (10:42)
sketchy.

a lot of

Well, okay, we’ll find out. You know what? I like, you one of the things I’d go back to is how did you grow your TSP? Did you grow your TSP by putting a lot of money in one day and just never doing anything again? No, you grew up by dollar cost averaging. You grew up by systematically putting money into the stock market. It was going up, you put money in, it was going down, you put money in. And you know what? If we have a lump sum of cash, why don’t we take a modified approach like that? The market’s a little volatile right now. Let’s dollar cost average over the next several months into it.

So let’s put 25 % this month, next month the following month. Hey, if the market takes a 30 % dip, awesome. Let’s accelerate and let’s buy more at a lower amount. So this way it gives us a little bit of control, right? When the market does something, we have a little bit control on how we’re gonna react to that. Now, could this be a bad strategy? 100%, right? Because you could dollar cost average and the market could go straight up and you’re not gonna participate in those gains, right? So that’s been a little bit of risk balancing. So that’s kind of my thoughts, Luke, but what did you say?

Luke Eberly (11:55)
I

Micah Shilanski (11:56)
love to do is to help federal employees understand their federal benefits. Now, that’s the reason we do our podcasts, that’s the reason we do our articles, that’s the reason we do our webinars. But one of the things that’s really great is when we get to do an in-person class just for federal employees. Now, why do I think this is so great? Of course, I’m a little biased. We’re presenting it. But what I love about it is not only are we going to walk you through your benefits from soup to nuts to make sure you understand it,

Luke Eberly (12:05)
which are all fantastic.

Micah Shilanski (12:22)
We’re going to not only help give you clear action items as we go through all of this wonderful content about how do you take control of your federal benefits. We’re there to answer your questions. a webinar, there’s only so many questions we can answer. There’s only so many questions we can answer, but that’s the reason we limit our sitting

Luke Eberly (12:34)
I answer in a podcast.

in these classes.

Micah Shilanski (12:42)
classes

so we can bring in just a handful of federal employees and their spouses so you can better understand your benefit. Keep in mind our mission is to help over 1 million federal employees with their retirement. And the way that we’re going to do that is not only phenomenal podcasts, not only great articles, not only great webinars, but in-person seminars. and the good new is if you’re here in Alaska then you get to join us for our in-person seminar. So make sure you click the links below, make sure you join us and make sure you come with the question you have about your retirement.

Luke Eberly (12:54)
Hire me.

seminars and the great news is if you’re in Alaska then you get a person

questions that you have your environment.

Micah Shilanski (13:12)
Whether it’s just about your federal benefits or retirement as a whole, again, there’s a lot of things to know and you are responsible for understanding your benefits and getting the most out of it. I hope to see you then. Happy Planning

Luke Eberly (13:22)
That’s exactly what I said, Micah. I said, let’s spread this out. Perfect. Yeah, we spread it out into five tranches, right? Five investments over time. But they pushed back. They really wanted to sit in cash. And we had to have this discussion. And we said, and they were like, why don’t we just wait for a dip? Now, if we did that, Micah, what would their account be missing out on today? Probably at 15 % growth from that time period. 15, something like that.

Micah Shilanski (13:52)
I

was just pulling up the numbers when you were saying this.

Luke Eberly (13:55)
Exactly.

I’m going to meet with him next month and I think I should bring up those numbers. This is why we don’t just wait and try to time the market because unless you’re somebody, and I don’t know of anybody that knows what the market’s going to do tomorrow, it knows what the market is. It’s definitely going to crash. We don’t know. And so unless there’s somebody out there that actually does, it just makes sense to just go with the fundamentals, go with the math.

invest and if you don’t want to invest that full million at once like in this case, I do like the idea of let’s do these different tranches. Let’s just spread it out a little bit. We just did it over a couple months. Investing. Yeah.

Micah Shilanski (14:39)
You know, Luke, let’s let’s kind of hold the thread on this one a little bit more. Then I want to give people some action items. What are things we actually do? We’re not saying be passive investors and you’re just subject to the ones in the market. So don’t take us the wrong way. That’s not what I’m saying. There are things you can do when the market goes down to in to hopefully accelerate recovery and some returns. We’re going to talk about those in just a second. But.

I want to pull the thread a little bit more on this, know, sell high, buy low, you know, it’s boy sounds great to me, but you know, I want to pull the thread on this a little bit more. And so what I was talking to my daughter about last night when her teacher was kind of talking about this and saying, all right, so you sell out today, right? You wait for that market dip to come down. When do you know it’s the bottom? And look, this is just what you were talking about, right? Is you don’t know what the market is going to do. So when do know it’s the bottom? Now for me, I’m a very tactical kind of guy, right? I like when we’re managing money.

with our clients’ funds, we’re running different portfolios, different models, et cetera. I’m a very analytical person. I like very clear distinction on what our rules are, right? Not my emotions into the stock market. It’s like, what is money doing? What’s momentum? What’s our point figure charts? All of these things we’re gonna look at. That’s gonna determine how we’re positioning our clients’ money and our own personal money. So I would say I’d apply that same rule to buying at the dip. Awesome. What are your rules that’s gonna show you what the dip is? Not your emotions, not your feelings. What are your rules? And if you don’t have…

have those, that’s going to make it really hard to identify what the dip is. Also at the top, what are your rules for saying the market’s capped out? Right. The fact that it’s been at a high, I don’t know, it’s been at a high for almost forever, except for when it’s not, right. But it’s been at a high a lot for the last decade. So that’s not a great rule. I don’t see how I could use that as a good rule of thumb to sell out.

Luke Eberly (16:21)
Right, right, exactly. Because, you know, like I said, it’s this curvy line, but there’s, there’s consistently, like you said, especially over the last decade, consistently we’re seeing highs. And so it is really tough to know that that’s going to be the high and there’s going to be a big bottom, you know? It is just, unless somebody has a crystal ball out there that ⁓ I would love for you to reach out to us and let us know.

when that bottom is coming, but we don’t. And so it is very difficult to time.

Micah Shilanski (16:57)
Yeah. Okay. So let’s talk about what do do when the market goes down? Because it’s going to go down, right? ⁓ Number one, did we have a plan for this? And if we had a plan for this when our emotions weren’t involved, that means when the market wasn’t going down, it was probably a good plan. I kind of have this rule. I like to trust my former self. Like my former self is pretty disciplined in putting certain things together. And I like to trust those plans we put in place. So it’s the first thing I’m going to look at is what plan do we have in place when the market goes down? Then I’m going to look at it.

and say inside of that plan, I say like distributions, are we going to take any money out? Do we have enough money in cash? Right. Are we protected from the downside of the market? Can we have enough time that we have enough distributions coming out that we can ride the market back up? But then, Luke, I want to look at this and say, hey, inside of my plan, is there anything that I could accelerate right now to make it a little better? Right. So when the market dips, if I was going to do a Roth conversion this year, when the market dips,

Should I look at accelerating that Roth conversion? I was gonna do it anyways, right? Okay, if I wait till the end of the year, hopefully the market has recovered by the end of the year. Should I do it a little sooner? Last year was a bit tricky because our tax code was gonna turn into a pumpkin, right? And we didn’t know what the tax code was gonna be at the end of the year. So it was hard for us to tell clients to say, let’s accelerate these Roth conversions in 2025 because we knew they were redoing the entire tax code and we were playing tax roulette.

Like it could work out great for you, but if they pass a law that this is a bad, we’re stuck with this Roth conversion that we can’t undo. But those are one of the things that I would look at trying to accelerate. What about you?

Luke Eberly (18:31)
I would also say Roth can or contributions as well. Right. know, you can make up to, well, I think it’s 8600 in 2026. If you’re over age 55, age 50, age 55. Age 50 for that one. We’re over age 50. can do 8600, which is a new one. Otherwise it’s 7500, but maybe.

You know, typically a lot of our clients, I just have them do it at the start of the year, right? Because I’m not, we’re not going to try to time the market, but if that’s something that you’re not sure about making that Roth contribution and you do see a dip happen in the market, it might be good idea to put some of your cash that you’ve set aside in your savings account or wherever that you’re planning on making that contribution. That might be a good time to do it. I would say that otherwise, you know, keep on making those TSP contributions every paycheck.

Because like you said, the dollar cost averaging of making those contributions when the market goes down, you really see the return by having those constant contributions coming out of your paycheck, which is fantastic.

Micah Shilanski (19:40)
All our cost averaging works. Yeah, so you know this Luke, but it’s not when you turn 50, it’s the year you turn 50. So if you turn 50 on December 30th of this year, great news, you’re 50 for the tax year, so it’s all effective by your tax year for this particular rule. So you can put in that $8,600, so fantastic. Also, I always gotta keep in mind there’s that weird extra catch up, right, between what, 60 and 63? This weird thing came out in Secure 2.0.

And it’s for your TSP account. you can put in the catch up right now is eight thousand dollars into your TSP account. So you can put in your full contribution, which is twenty four thousand five hundred. Plus, if you’re over 50, you can put an extra eight thousand dollars on top of that, which is fantastic. But then if you’re between 60 and 63, I don’t know why they came up with these ages. Right. People ask me that. I have no idea. But if you’re between 60 and 63, you get a super catch up.

which is an extra like 3,250 bucks. So instead of eight grand, becomes 11,250. So if you’re in that age, the TSP does not automatically bump up your contributions. You have to reach out to the TSP and increase those contributions. And that can go into the Roth, by the way, the Roth TSP, that’s an allowable contribution into the Roth. doesn’t have to go into the traditional account, which is awesome.

Luke Eberly (21:02)
Yes, exactly.

Micah Shilanski (21:03)
So we’re going accelerate contributions if we’re going to have them. We’re going to accelerate Roth conversions. So one of the things is I coach a couple hundred financial advisors. Luke, I know you know that. And in there, there’s this constant debate in the financial planning community. And in the financial planning community, a lot of advisors out there are really big in what is called tax lost harvesting. If you have a non-qualified account, right? So not a Roth account, not an IRA account, not your TSP, but a non-qualified you’ve put money into and you’ve lost money in that account. have

unrealized losses. bought something for a hundred bucks and now it’s worth 80. It’s gone down in value. There’s this thing called harvesting tax losses where you’re going to sell that security and you’re going to get a loss and you’re going to be able to use that to help lower any capital gains you’re going to have in the future. Now, my contention with this, this is not a primary tool that we plan with. Why? I don’t like to plan for my clients to lose money.

Yes, it happens from time to time, but I don’t think leading with that as our gold standard plan is a good idea. Our primary focus is to meet retirement goals and to make money in investment accounts. And if clients end up with tax money the end of the year, I’m not super sorry about that if they made money throughout the year. Right. So that’s got to be our primary focus that we’re looking at. Now, there are times that happen, though, where tax loss harvesting you should look at as a strategy when the market goes down.

But there’s a lot of nuances with those, so be kind of careful on how you use them.

Luke Eberly (22:28)
Yes, exactly. mean, if you’ve got a high tax year, especially, and you know that I’ve got capital gains coming in from an investment sale of a property or something coming in, that could definitely be the time to start building up those losses. And there are some really fancy strategies, but I like what you said, Micah. That’s not our primary strategy. Our primary strategy is to have gains in that account. And I like that more taxes means that you made more money.

Right. It’s not the end of the world to see a higher tax bill because that means that you made more money.

Micah Shilanski (23:06)
get it. It doesn’t feel good. I don’t like cutting the checks either. Like I totally get that. Real quick on, it’s a slight diversion from like market peaks and losses to go through, but keep in mind on a tax loss harvest strategy, you can use other types of capital assets to go against capital gains in stock market. For example, if you bought land and land went down in value, land doesn’t always go up in value, by the way. Sometimes people lose money in land. So had a client that had a pretty substantial loss in land and a pretty substantial

gain in their investment accounts. Well, the year that we sold that land and generated this massive capital loss, we actually did capital gain harvesting. Luke is they had a loss unintentionally, right? We weren’t trying to sell it for a loss. They just happened to dispose the property, had the loss. Now what I wanted to do was trigger a lot of gains in their account to use that loss, right? So I could step my basis up in all of these securities and not have to pay taxes. So.

knowing and understanding tax code is really important and knowing when to do these strategies. Like if the market had fallen 30 percent, I probably wouldn’t have done that strategy. Right. But when we did it, the market was really high. So it made a lot of sense to do that at the time. Yeah.

Luke Eberly (24:17)
Totally couldn’t agree more. And it is really nuanced with the tax loss harvesting. definitely getting some advice, unless this is your passion project like Micah and I, loving to read the tax code and loving to do the taxes. I will say it has nuance. It’s not as straightforward as always tax loss harvest, right? With some advisors I do hear from advisors, let’s do direct indexing accounts. Let’s get all these losses.

And sometimes it’s a good strategy. Sometimes it’s not. just got to know the client. You got to know the goals, right? And implement accordingly.

Micah Shilanski (24:52)
Yeah. And to our listeners out there, like Luke and I can geek out pretty quick on this stuff. ⁓ When you’re working with somebody, you need to understand it. You need to understand the strategy. You need to understand the shotgun. Do you need to have the same in-depth knowledge the expert you’re hiring? No, not at all. But if it just doesn’t make sense to you, hit the pause button. That’s going to be a warning sign that professional needs to explain it a different way. They need to work with you. They need to take baby steps. But this is your money.

This is your retirement nest egg. This is all that you have you put together. You need to understand how that money is working for you.

Luke Eberly (25:27)
I like that. Ask questions. I love when my clients ask questions and they’re like, ⁓ this might be a dumb question, but could you explain this? And I’m like, there are no dumb questions. This is your money. This is your future. You should be questioning what I’m doing. You should be asking why this, why this? And I love getting those questions. It means that they’re invested as well. They want to learn, they’re engaged. And also it’s your money.

You know, it’s your future. Make sure that I’m doing what’s best for you with that future.

Micah Shilanski (26:03)
Well, Luke, this podcast is all about action items. So I’m gonna say the first action items with clients out there, if you’re not working with a professional helping manage your money, then what are your rules around investing? And your rules should be written so you can reference them and go back to them. When do you put money in? When do you take money out? When do you review it? What are your investment rules?

Luke Eberly (26:24)
I like that. I like that Micah. That’s a great action item. And I’d also say, you know, to keep in mind some of these strategies that we talked about, if the market does crash, does go down.

Micah Shilanski (26:38)
When. When it does crash.

Luke Eberly (26:40)
That’s better. When, not if, right? When it does go down, what are your strategies? And I really like having the strategy when things are going well, like you said, you’ve got to have that strategy now. Build up that cash balance now to weather the storm when it goes down, things like that. Be ready to make maybe additional contributions to your Roth or have these other, maybe that’s a good time for a Roth conversion, but just know your strategies so you’re not.

panicking when it goes down and doing things out of panic. Know your strategy now for when that happens so you know what you’re going to do and you don’t make an emotional in the moment panicky decision when the world is falling apart like it was last March and then you would regret it for the rest of 2025 and maybe even longer.

Micah Shilanski (27:31)
Luke, like that. All right. Remember to share this podcast, send it out. Our goal is to help another 1 million federal employees with their retirement. And we cannot do this without your help. Make sure you do that. Jump on our website, planyourfederalretirement.com. Submit your questions. We love hearing from our audience. And until next time, happy planning.