1792 Alysheba Way, Suite 201, Lexington, KY 40509
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The Why Behind What We Do

Our team works hard behind the scenes to help you reach your goals. 

One thing that always follows New Year’s resolutions is the review of your stock portfolio, right? Lots of folks want to sit down and talk about not just the previous year, but take a look three or five years back. Then come the questions of “what have you done for me lately?” as folks look at their statements after the volatility of the last quarter. We know we need to be prepared to answer these questions, and we welcome them. 

The first meetings of the year are when we discuss any new themes and ideas we have for the coming months, whether you’re a new or long-term client. I assure you that, this year, based on the recent market activity we’ve seen, we’ll have some new recommendations as we adjust to this new normal in our economy. 

For all of you current clients, you know that when you first came to us, we most likely introduced you to a new or different approach to your portfolio, and how we would recommend investing, and you most likely asked us questions about our approach and purpose: “Why do I need to do this, and how will it benefit me?” Trust me, we’re used to those kinds of questions, and we love to answer and discuss them with you.

That said, if you’ve been with us a while, there’s nothing wrong with taking a mini refresher course. Our perspective is that, for the last nearly decade, the bond market has not been an attractive place to invest if your goal is to withdraw 4-5 percent per year for your retirement income, while keeping up with inflation and maintaining and growing your portfolio, so you can A) have access to long-term care, and B) have something left to pass on. A simple way to think of it is to take enough risk to facilitate income needs, while attempting to grow your assets and keep up with inflation as the price of strawberries, milk and tires go up. 

In this strategy, we’ve typically kept higher than historical allocations to equities, and lower than historical allocations to bonds & fixed income, along with a healthy allocation to alternative investments. All of this is of course based on each client’s unique situation, needs and risk tolerance, and nothing is guaranteed. 

I want to take a step back for a moment to say thank you to those of you who have contacted us over the last 90 days, as we always want to address any questions you have. When it comes to your portfolio construction, many of you have read headlines and articles that tell you that, at a certain age, you need to have a certain percentage of your money in stocks/bonds/alternative investments/cash/whole life insurance. So, you’re thinking, “I’m 65, shouldn’t I have a certain percent in X because of my age?” 

In a perfect world, where stocks return 8-12 percent each year, bonds do 4-6 percent, alternative investments do 6-10 percent, the cash in your money market returns 4 percent and life insurance pays 5 percent dividends, then sure, at 65 you should have no more than 35 percent in stocks (100 minus your age). Believe me, I wish it was that easy! But we all know that past performance is no guarantee of future results, right?

It would be great if all of the asset classes listed here performed perfectly at these historical averages. But the reality is that we haven’t seen 3 percent from a money market or 4-6 percent bond portfolio yields in nearly a decade. We typically only keep about 3-5 percent of a client’s portfolio in whole life, so for the most part, there’s not much more we can add there. We also typically don’t have higher than about 20 percent in alternative investments, simply for liquidity purposes. 

When we look at ways to adjust, if we can’t get higher yields from bonds & money markets, one of the places left to invest to try to help clients reach their goals is the stock market. Of course it’s not as simple as just owning stocks, and we never want to see people panic themselves into buying high and selling low. The articles you read tell you to be more risk-averse as you age, to avoid losing it all, but the majority of those investments are backed by the full faith and credit of the United States government, or the entrepreneurs and constant innovations of America. We believe the American companies that we like to invest in will continue to innovate and outperform the rest of the world.  

While we can buy high dividend stocks that we can hold and collect dividends from, and some might yield 4-6.5 percent (which is the historical average of a bond yield), they come with the potential up and downside for potential growth or loss should you sell. There’s more to the strategy of course, but to keep it simple I’ll say that, in my opinion, the best way to try for the retirement you want is to continue to prudently own equities, and take the approach of a gardener with your portfolio. When your equities are high (or your vegetables are ripe), you might pluck and enjoy the spoils, stocking your pantry with extra food (or adding to that rainy day fund). At the same time, when your equities are low (or you’ve just trimmed your garden back for the winter), you can live off those reserves while you wait for more bounty. 

The key to this approach is working with an advisor who will be proactive for you and your unique goals, but at the same time will be disciplined enough to sit on their hands and do nothing when that’s the best thing for you long-term dreams. After 22 years of being in this profession, that’s often the hardest the thing to do. Remember that Warren Buffett quote? “Be fearful when other people are greedy, and greedy when other people are fearful.” I often tape this up to remind me sometimes, and I think we’re witnessing this right now. 

We’re not there yet, but I think we’re getting closer to a point in time where bonds begin to make sense again in a portfolio. Maybe not this year, but as we get together in the next few weeks, whether for our first quarterly meeting of the year or for you to get a second opinion on what you’re currently doing, we do have some ideas to discuss with you. 

If you want to know a little more about how we operate, click here, or simply pick up the phone and give us a call at 859.219.1006. We look forward to hearing from you. 

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