It’s All About the Income

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Brett Horowitz, CFP®, AIF® Principal, Wealth Manager

Success, with a Little Help from Evensky & Katz / Foldes Financial

“The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one.  The commonest kind of trouble is that it is nearly reasonable, but not quite.” – Frederick R. Macaulay

In other words, just when things look stable and one thinks he or she can know what to expect, something occurs to change the current path and that something is unthinkable and unknowable (i.e., Black Swan Theory).  So, if the economy doesn’t move in a predictable pattern and we can’t predict the future, where does our value lie?

To answer that question, we’d like to share three short stories from clients that recently joined Evensky & Katz / Foldes Financial.  Please note that their names and facts have been changed for privacy.

It’s All About the Income

We frequently have spouses that are suddenly thrown into the role of being the main financial decision maker of the household (due to death or incapacity) and this story begins with our client, Richard, who recently lost his father and stepped in to help his mother figure out her financial future.  His father previously assumed the investment role in the family and his mom was left trying to understand the various accounts and strategies.  This was complicated by the fact that there were ten different accounts scattered around, the largest of which was invested mainly (75%) in dividend paying stocks and high-yield (or junk bond) funds, and in aggregate formed a high risk portfolio.  The reason for this mix was that the father had wanted a portfolio that would produce enough income to meet their needs without having to touch the principal.  This strategy meant that when cash and safe treasury bonds yield little, the mix of dividend paying stocks and high-yield bonds must increase, and as a result the risk gets greater in order to provide the necessary income.  This arrangement is ironic as the father and mother were both extremely risk averse!

Richard recently went through our financial planning process and we determined that the account could be invested 70% in high quality bonds, almost a complete turnaround from the current allocation.  This was based on the fact that due to his mother’s specific spending needs relative to her income and assets, a higher allocation to high quality bonds not only lowered the risk, but also provided a higher probability of success.  Using our unique cashflow strategy, we were also able to suggest a much more diversified portfolio by carving out upcoming cash needs.  It was a win-win situation for Richard, since his mom now sleeps better and he would ultimately be responsible for supporting his mother if her assets ran out.  In fact, he is now looking to go through the same exercise with his aunt to ensure that she outlasts her money!

Conclusion

As you can see, clients seek out our services for a variety of reasons, but in the end, they are all looking for something similar.  By providing them with a financial plan that balances their risk tolerance (how much risk they feel comfortable taking) and their retirement needs (how much return they need to meet their goals), our clients can rest easy knowing that we are looking out for them and putting their interest first.  At the end of the day, the fate of our clients will not be based on whether or not we can predict the stock market, but will be based on factors in our control, such as reducing taxes and expenses, diversification, rebalancing, and annual reviews of long-term planning results.  It’s not just that you can’t time the markets, it’s that you don’t need to.

Thanks for reading hope you enjoyed! As always feel free to contact Brett Horowitz with any questions 305.448.8882 x216 or BHorowitz@ek-ff.com