How We Do It

May 31, 2022
10
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Given the news, and emotions, of the moment, we thought it would be a good time to revisit what you own, why you own it…and how it’s doing so far this year.

Your Life, Not the Market

We design your portfolio based on your life. That means we customize and adjust your investments based on your current financial situation and life goals, NOT the market.

This is not just something we say to sound catchy, it’s how we do it.

Each portfolio is unique and personalized to your specific life needs, wants and wishes. We don't use models or algorithms.

We are planners; not prognosticators trying to anticipate short term market moves based on recent headlines or political events.

Like a doctor's prescription, we provide our professional diagnosis and portfolio recommendations after a complete and thorough understanding of your current financial situation, goals, timeframe, and risk tolerance.

Our Strategy

We separate your investible assets into three individual buckets, each with a goal of meeting specific needs over a particular time horizon with an agreed upon level of risk.

As your life and/or circumstances change, we update your plan and your investment allocation accordingly.

How We Build Portfolios

Emergency Funds

Before investing, we help clarify how much you need in an emergency fund that is separate from your day to day spending.

This is more of an art than a science as people have unique situations and need different levels of cash to feel comfortable.

For example, a dual income working couple may feel comfortable with a lower cash level than a single income family of 5 with small children or a retiree with no pension or fixed income.  

This may represent six to nine months living expenses or simply a dollar amount that makes you feel secure. Emergency funds should remain in a separate savings account.

If funds are spent down/used, we simply replenish from the buckets below.

Vetting Our Investments

Once you’ve established your emergency fund, we can now get you invested. The first thing you should know is that we’ve done our homework on anything and everything we recommend to you and your family.

For an investment to make it into a Gg portfolio it must meet and maintain a litany of the highest standards and verified by third party research such as Morningstar.

Our in-depth process of vetting investments includes evaluating a wide variety of factors including the underlying strategy, historical returns, the character of the management team or financial institution as well as an evaluation of tax efficiency, expenses, and turnover.

Our advisory team meets weekly to review and monitor portfolio positions and life changes throughout the year. In addition, our investment committee meets quarterly to review client holdings, allocations, relative performance, and regulatory changes in the industry.

In short, we know exactly what you own and why you own it.

Bucket 1

Bucket One represents a conservatively crafted diversified portfolio designed to provide up to four years of living expenses as well as expected capital purchases. This bucket is in addition to your emergency fund and provides protection in the event of unforeseen circumstances

The investments in this bucket are short-term in nature and consist of conservatively allocated low-cost, diversified mutual funds with rising income/dividends.

The primary purpose of these investments is safety, liquidity, and current income.

Bucket 2

Bucket Two is structured for income and growth with a timeframe of five to ten years. Clients with a more conservative overall risk tolerance may feel more comfortable with these portfolio holdings for even longer periods.

We utilize a mix of blended funds consisting of diversified fixed income combined with US and international equities. These investments have moderate growth potential with rising dividend income to manage inflation risk and serve as a backup in the event Bucket One is exhausted.

Bucket 2 may include up to 50% in bonds and is designed to provide less downside risk during volatile times than the equity market.

Bucket 3

Bucket Three covers your needs beyond ten years and is fully invested in a diversified portfolio of low cost, diversified equities (stocks).

For this bucket, we utilize a combination of equity index funds, ETFs, mutual funds, and in rare cases, individual stocks. This bucket is meant for funds needed later in life or legacy money to leave to heirs.

The purpose is long term growth and inflation protection, allowing more fluctuation in the values over shorter time periods.

When We Make Changes

We make changes to your portfolio (and the respective buckets) based on changes in your life or your goals, NOT changes in the market.

We also never make changes to portfolios based on the economy, the political landscape, or in reaction to any current event.

The key is consistent communication and regularly scheduled annual reviews with our team to ensure we are both on the same page with respect to your life... and your investments.

For example, if you’re retiring sooner than anticipated, you're considering buying a new house, or an unexpected life event happens, we will talk and adjust accordingly.

In short, if your goals haven’t changed, neither should your portfolio.

The Market

At its lows for the year, the S&P 500 declined more than 20%+ with the Nasdaq faring even worse dropping over 30%. International markets have been no better though the biggest shocker is bonds, whose broad based prices have declined as much as 10% to 25%+ due to rising interest rates.

How Have Our Investments Performed?

Through Friday May 27th, Bucket 1 is down less than 5.5% year to date. This is considerably less than what we would expect considering the market decline. It’s also currently providing a nearly 3% annual dividend yield which provides a supporting income buffer during this time.

Bucket 2, is currently down between 9% and 11% as of this writing which is slightly worse than what we'd expect. This is due to the decline of bond prices in these portfolios resulting from rapidly rising interest rates. However, paying a 2%+ yield on average provides for the compounding of reinvested dividends during these discounted periods.

Bucket 3 is mirroring the broader market declines, as expected. Since Bucket 3 is pure stock exposure, it does not have the downside protection during these short-term drawdowns like buckets 1 and 2.

Funds invested in this bucket are not needed for at least 10 years, so these declines are not only to be endured, but are expected.

Bucket 3 represents the single best protection from inflation over the long-term and the safest asset to own when looking out at a 10-year timeframe.

It also has by far the best upside from here for the long-term.

Our broad-based index approach has held up substantially better than individual companies, many of which are down 75% or more.

We have absolutely no concerns about the health and recoverability of our holdings.

What Ultimately Matters

While performance is helpful for perspective (and we review it with you annually), our ultimate measurement for success is your progress and likelihood of accomplishing your life goals, not a market benchmark.

Our goal is never to beat the market.

The portfolios that we built are performing as expected during these times. The current declines are not unusual, and represent the price of admission for longer term returns.

The most important factor right now is not the performance of your investments, but rather your behavior as an investor.

As long as you don’t make The Big Mistake, the power of compounding is working relentlessly in your portfolio.

We hope this helps provide you some insight and comfort into how we build portfolios and how we make decisions regarding your wealth.

This time is not different.

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