Briefcase Study

May 2014: Briefcase Study

In Briefcase Study, Investment Management, May 2014 by Adam Cufr

Each issue of The Steward will include a brief case study. In it, strategies will be highlighted that we utilize in solving problems and creating opportunities for our clients. We hope you’ll enjoy this case study and find some wisdom in it that may help you in your own planning.

How do you invest wisely when bonds are losing value, stocks are flat, and you’re waiting for the other shoe to drop in the economy thanks to a government you no longer recognize as your own?

(Before I answer, make sure that you have read the “Back to the Basics” piece … it’s a necessary foundation to understand what follows )

Okay, now that you’re caught up, let’s assume you’ve become clear on the purpose for the money you’re investing. The question above was asked of me by a couple that is already retired and has an income plan in-place that guarantees them a lifetime of security and income. They also have substantial long term care funding in place. Their question was a natural follow up … perhaps one that many of you are already asking yourselves.

Having adequate guaranteed income and long term care risks planned for allows us to treat the money in question as “surplus” money. This presents you with two distinct options:

  1. Take substantial risk with this money (Because your basic lifestyle is already secured by your income plan)
  2. Take little-to-no risk because you don’t need to chase substantial returns. (You already have enough)

Editors note: this is the typically the moment during the meeting when spouses look at each other, turn to me, and give me opposite answers. Ah, the joys of marriage. One person enjoys risk, the other despises it.

If we look at this “surplus” money from a higher level, it is very likely that a retiree will not need all of the money at once. Even if there is a major RV purchase or a second home, most retirees will not exhaust their savings for such things. Therefore, we often consider scheduling the money for potential short-term needs, mid-term needs, and long-term. This allows us to take appropriate amounts of risk, given the investing timeframe for each tier of money that is not needed for basic lifestyle expenses (i.e. needs).

For the shorter-term money, we are working with Global Financial Private Capital, our core money manager, to employ a conservative income strategy. This is comprised of some short-duration bonds (shorter duration bonds are less susceptible to a rise in interest rates), dividend-paying stocks, and Master Limited Partnerships. This approach can still see some short-term fluctuation in values, but is much more stable than the moderate and aggressive approaches I’ll outline next. This conservative money allows for some growth potential, but is primarily focused on shorter-term needs.

For a second tier of money, allocated for medium-term needs, a portfolio consisting of dividend-paying stocks may be appropriate. This will result in some price fluctuation, but dividends paid to investors can help to soften any declines because of the income generated. Because many investors enjoy the dividends paid by these companies, their stocks often remain attractive when the market shows signs of distress.

Finally, having some money earmarked for long-term needs allows you to take some serious risk if you’re so inclined. Why? Not needing the money anytime soon means you can ride out the storms the market may bring and invite the possibility for higher returns. This may include growth funds, alternative investments that are inflation hedges, and individual equities that you have an interest in.

When your income is secured, the investment strategy that you implement can be arranged to expose you to any number of assets classes that provide growth potential. The potential for losses are also there, but those can be managed by way of assigning each investment to a time horizon that’s appropriate.

If you have questions about the construction of your investment portfolio, please contact us and we’ll do a thorough risk analysis and help you discover how to structure your portfolio so that the current news and noise do not keep you up at night worrying. Your investments, just like life itself, is all about context.



Adam Cufr, RICP® (Retirement Income Certified Professional®) is a financial advisor and founding principal of Fourth Dimension Financial Group, LLC providing personal finance and retirement planning services. Adam is a Columnist for Retirement Advisor Magazine. He is also a sought-after media commentator and thought leader. Adam was named one of The 20 Most Creative People In Insurance in 2015 and is a columnist for Retirement Advisor Magazine and the author of Off the Record – Secrets to Building a Successful Retirement and a Lasting Legacy.

    Find more about me on:
  • facebook
  • googleplus
  • linkedin
  • twitter
  • youtube