Developing Your Investment Strategy
Client: Fred and Wilma, age 64 and 60
Job: Engineer and Elementary School Teacher
Earnings: $125,000/year combined
Net Worth: $1,375,000
Children: All children are grown, married, self-supporting, and not living at home
Situation: Fred and Wilma are both retiring from their jobs within 6 months. Fred says his portfolio has gotten too large to handle on his own and doesn’t feel comfortable with the responsibility anymore. Additionally, Fred wants to protect Wilma in the event of his death. Since Fred has always handled the money and investments, he wants to develop a relationship with an advisor that Wilma feels comfortable working with.
When Fred and Wilma met with us to discuss an investment strategy for their $1 million portfolio, we began by asking them questions about their dreams, concerns, goals, desires and attitude for risk. Fred had accumulated a cornucopia of investments at 6 different custodians resulting in too much paperwork, confusion and duplication of investments. Additionally, his strategy, or lack of one, had led him in a very risky direction.
One hundred percent of their money was invested in the stock market. This was an excessive amount given their more conservative responses to a detailed behavioral finance questionnaire. In order to reduce risk, balance the portfolio between stocks and bonds, and potentially improve performance, we suggested they broadly diversify away from their large-cap only orientation. We suggested they incorporate mid-cap, small-cap, international and emerging market equity in their stock portfolio. Additionally, we recommended their fixed income allocation include government bonds, corporate bonds, muni-bonds, international bonds and emerging market debt bonds. We also reviewed how our core, active and alpha portfolios were developed and how fees were correlated with the ability of the managers to add value. This strategy alone could save them in excess of $2,500 per year in fees and expenses.
Another area affected by poor diversification and coordination is taxes. After all, it’s not what you make – but what you get to keep. Consequently, we suggested and they agreed to bring their accountant in on our discussions about tax-free, tax-deferred and tax reduction strategies. In this way, all of their advisors could be on the same page working together toward one common goal.
We agreed to help Fred and Wilma structure an appropriate total portfolio that would eliminate duplication, reduce paperwork, consolidate accounts and simplify their lives. We manage a large portion of their assets internally and play a quarterbacking role overseeing other components of their portfolio. Fred, in particular, feels his stress level is down now that he has delegated the management responsibility to us. They are both happy with their cost savings and risk reduction, and Wilma feels comfortable enough with us that she now talks with us regularly. It is our pleasure assisting them.
*Names and some details have been changed to protect client confidentiality.
