Simplified Approach to Investing for
Long Term Wealth
If you are a beginning investor, we emphasize the most important factor in establishing your long term wealth accumulation is to SAVE MONEY. That includes making a conscious effort to spend below your means, and save, save,save.
Many young investors are surprised when we show them the academic research indicating the rate of return on their investments makes little difference in the first 6-8 years of accumulation. The power of compounding begins to make dramatic differences thereafter, as it requires shorter and shorter time periods for their money to double (reaching one to one), and again (two to one), and again (three to one).
For veteran investors who have already accumulated substantial assets, we believe asset allocation to be by far the single most important factor contributing to their long term wealth. According to Ibbotson independent research studies, 91.5% of a portfolio's performance is attributable to its asset allocation policy.
Our own professional investment experience has mirrored the Ibbotson studies revealing that 100% bond or fixed income portfolios are not completely 'safe' when you factor in the erosion effects of income taxes and inflation. Research by Ibbotson indicates a 100% bond portfolio does not provide adequate return to offset inflation. However, an Ibbotson study spanning the period 1970-2002 revealed that a 24% mix of equities with a 76% bond portfolio actually reduces the risk while adding more return to the portfolio.
Direct Instruments v. Mutual Funds
We invest primarily in direct instruments (stocks, bonds, muni's, Treasury securities) when we are comfortable that the size of a client's portfolio will permit adequate diversification investing across several industries.
To complete the asset allocation across various asset classes, we select no load, low cost index mutual funds and exchange traded funds for domestic small and midcap, and for international exposure.
In smaller accounts where the dollar values prohibit adequate spreading across ten or more industries, we build a portfolio using no-load mutual funds and passive index funds.
There is no doubt that investing in direct instruments yields greater control over the effect of income taxes. Further, we have found that many mutual funds under perform the market when you factor in high management costs (in loaded mutual funds), high turnover ratios (investments sold inside the mutual fund with no correlation to your individual needs) causing tax liabilities at unfavorable rates (rather than long term capital gains rates). Add to that the fact that mutual funds must keep excess cash in reserve in order to allow investors to cash out at any time (translation: the mutual fund is never fully invested).
For clients whose previous investment experience or personal comfort level dictates, we provide an alternative passive investment style, utilizing index funds, and exchange traded funds which mirror the market in general. We agree that achieving the highest potential return should not be a primary goal. Rather, structuring a portfolio that allows a client to meet their financial targets, to keep up with or beat inflation, and to sleep soundly at night without worrying about the value of their portfolio truly makes a success story.
Independence from Proprietary Products
Our background as CPA's influenced and impacted our money management business model in maintaining our independence from dealing in proprietary products. In our money management portion of our business, we are compensated either by charging a percentage of assets under our management, or a flat fee. We feel that this arrangement prevents any incentive to churn accounts to generate commissions, or to sell specific products that produce higher fees. Further, we do not share in any portion of the nominal transaction costs incurred by our clearing brokerage house.
Additionally, since we are not associated with any particular family of funds, we are able to screen our index funds and mutual fund selections through independent research services in order to know who manages the fund, and to judge the fund's performance relative to its peers within the same sector, assess its turnover ratio for income tax effects, and ensure that the investment policy of the fund is in accordance with our own. We have no incentive to invest in a particular fund family other than in meeting our clients' needs.
Retirement's Out-Vesting
Retirement no longer represents a specific date; it represents a continuum in each person's life downshifting from their "accumulation phase" through their "distribution phase."
With new trends in the self-employed workforce, and cutbacks on employer sponsored pensions, the responsibility for retirement support is shifting away from government and employer sources back to each individual.
Your lifetime program of managing your savings and investing provides the financial resources for your retirement's "out-vesting" years.
Our advisors are trained to help you manage your wealth to proivde lifetime cash flow to you and your family. We focus on all areas that touch your financial life, and help structure a financial plan that correlates with your personal values. Whether you are contemplating retirement or need professional guidance to be sure your current retirement plan is on track, CONTACT US for a confidential analysis.
Longevity Risk & Your Financial Plan
According to recent statistics, it is reasonable to expect to spend 30 to 40 years in retirement.
There are many publications and websites devoted solely to "living to 100."
During this era of increasing longevity, we have witnessed health care costs dramatically outpace inflation, and felt a decline in medical coverage provided by private employers to their workers.
These facts bespeak significant financial challenges that will follow all of us into longer retirement years.
We strongly believe it is our duty as financial advisors to help you map out the way for you to support your lifestyle through a very long life - or perhaps to support multiple generations.
Therefore, your financial plan is not complete unless it includes analysis and frequent review of the following areas as applicable to your situation:
Cash flows and budgeting, income tax planning, investment planning, estate planning, education funding, business & succession planning, financial independence / retirement income planning, as well as risk management.
Paying for longer lives often means bridging the gap between health and wealth.
Whether you are still earning income and building your financial pile, or you are currently living in your wealth distribution years, preserving your financial assets to last your lifetime has never been so challenging.
That is why we affirm that Long Term Care and Disability Insurance are pillars of your financial security.
CONTACT US for a review of your family's needs.