An Investment Strategy That Makes Sense

An investment strategy should make sense, have clear goals and be easy to understand.

I spend my days doing math on a Hewlett-Packard calculator and thinking about financial plans. I’ve been doing this for 45 years. I’ve developed time-tested strategies for my clients.

Almost all advisors will tell you their approach is different, but most just fill in the blanks on a computer program, which spits out a report full of numbers. The only problem is anything that changes in the report changes your whole scenario.

I’ll work with you to create a plan that that you can understand, and that can be adapted as circumstances change.

Let me give you an example of what I do.

I have a client who has a $1.5 million condo. He owes $900,000 on it. He has about $5 million in his investment account. The question is, should he pay off the condo with assets or keep paying the mortgage? And whichever action he takes, how will that impact his retirement plans? He doesn’t know. So, he called me.

Solving these types of problems is what I do well.

My financial planning involves a very personal relationship. I’m almost like a coach. I sit down with my clients and calculate numbers. Let me share this process with you.

First thing we do is look at all their different sources of income, from social security to investments and pensions. There might be a house to sell and downsize, so we do those calculations as well.

What we’re doing is purely a mathematical equation. I like to keep it as simple as possible so you can easily understand your plan and how it will work toward getting you where you want to be.

Perhaps it’s helpful to think of your financial life as a shelf full of cans. Let’s say each can has a certain amount of money for a specific need. The goal is to never have one of those cans empty. If you decide you want to buy a boat when you’re 64, there’s a can labeled “boat” and when you’re 64 you can grab that can and there’s enough money in there to buy your boat.

I project a client’s needs to age 100. The goal is to make sure they have money for all of their needs. Enough money in every can.

Some advisors approach financial planning as a sales job. That’s not me. Through the years,         I’ve come to understand what people want from their investments.

The first thing they want is financial confidence to be able to enjoy life and always have a plan in place for having the money to do that.

After almost half a century of doing this work, financial planning to my mind is a very simple task. There are 6 steps. Let’s go through them.

1.    Cash is King. The first thing we do is secure your income. Say you need $100,000 a year to live. You need to have that amount in cash so that if something happens and you can no longer produce an income, you’ll be okay for a year. You need that cash somewhere very safe so you have a year to figure out your situation. The key is not to just put this money in the local bank. There are plenty of online banks that pay better interest rates.

2.    Fixed Income Investments. Here we’re talking about CDs and bonds. Right now, it doesn’t make much sense to hold these types of investments while interest rates are    as low as they’ve ever been. If that situation changes, the security of CDs and the lower volatility of bonds becomes more attractive.

3.    Dividend Aristocrats. We want to buy stocks in companies that have historically paid dividends.  I look at companies that have paid dividends for at least 25 years in a row. Coca Cola, for instance, has paid a dividend every year since the company went public, and the average dividend increase has been 8 percent. Meanwhile, inflation has grown about 3 percent. Whether the price of Coca Cola stock goes up or down, they have still paid that dividend over the 25 years. As you create your financial plan, the goal of step 3 is to buy enough of these types of stocks that you have enough money to live on. I help people put together a portfolio of about 40 stocks that have historically paid dividends year after year. 

4.    Hands-on Management. If you don’t have the money right now to invest so you can hit your retirement goal with dividend-producing stocks, then the next step is to go beyond plain-vanilla stocks. We shift gears to a manager. Now you have someone who’s actively studying companies, reading annual reports, maybe even meeting with the chairman of a company. In different environments, each manager will shine differently. I look over the managers and make sure they’re doing what they’re supposed to do. A diversification of investing styles makes working with several managers a good idea.

5.    Empire Building. Maybe a few years down the road you’re now producing a $140,000 annual income, but you only need $100,000 per year to live. So, you have$40,000 over and above what you need. What that means is you can take some of that money and buy stocks that don’t necessarily pay dividends but are high-growth oriented companies. Typically, younger companies. With empire building, what we’re aiming for is a higher rate of return. You don’t yet need income from these stocks. In fact, you’re putting this money into a portfolio you’ll probably never touch.

6.    Speculation. You may hear about a company with tremendous potential, a company disrupting its industry. The growth prospects are huge. You decide to buy its stock. The risk is if another company comes in with a way to do it better, the bottom could fall out of the first company you bought. The beauty of the speculation stage, which is the last stage for a reason, is your income and future are already planned out by steps 1-5.

The overall strategy is not to react whether the market goes up or down, but to hold stocks that have historically paid consistent dividends in line with your retirement income needs.

If you have enough dividend income, market volatility is less of a concern. You’re not selling these stocks; you’re building a portfolio that seeks to pay you dividend income. 

So, what I want to do is create a financial plan that gives you financial confidence. Wall Street wants to keep you scared. They focus on market volatility. Well, I believe risk is not in market volatility. Risk is permanently losing your money. But if you hold enough stocks that have historically paid a dividend that meets your income need, the odds of market volatility impacting your plan are not very great. If you have enough income to live on without liquidating anything, you just wait for the market to go up again.

Some advisors will tell you they’ve invented a product that will guarantee you an income. They may try to scare you, sell you a product that’s very profitable for them and very unprofitable for you. They might give you a 4 percent return on your money and you’re supposed to be happy with that, while they pocket a fee, they’re making off your money. But that’s not right when you could potentially be getting more for yourself.
I offer a simple, fair, and transparent way of helping you. The total cost I charge, depending on the complexity of what I do, is between half a percent and 1.5 percent.

So don’t be scared by the guy talking about investments on the radio. He doesn’t know your situation. The people who know what they’re doing typically don’t get on the radio to tell you about it.

Get in touch and we’ll put together a financial strategy that works just for you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. Strategies may not achieve their investment objective. 

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. 

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. 
CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity.

Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield.

Examples presented are hypothetical example and is not representative of any specific investment. Your results may vary.