330 Motor Parkway
Henry and Jane retired two years ago after selling their business. Generally speaking, they felt they were doing well with their financial and retirement planning. Recently, however, they have been getting conflicting advice from friends and relatives regarding their investment portfolio and its specific holdings. Their CPA suggested they contact NestEgg for an independent and objective opinion.
During our initial meeting, we explained to Henry and Jane that before diving into the portfolio details, we need to understand what they want the portfolio to accomplish for them. This is because we view the portfolio as a mechanism to achieve their goals, not as an end in and of itself. After further discussion, it became clear that their primary goal was to maintain their lifestyle throughout their retirement years with dignity and independence. Therefore, the portfolio’s job is to support this goal in coordination with other retirement resources.
The next step would be to create a goal-focused long-term investment plan. We explained that the most important ingredient for investment success is commitment. They need to stick with the plan—in good times, which is easy, but also in tough times and during inevitable periods of market turbulence, which is not so easy. We made the point that this commitment could be best achieved or perhaps only achieved by establishing a relationship with a trusted advisor who serves, among other roles, as a behavioral coach. A trusted advisor can make sure, to the extent possible, they’ll always stick with the plan even when they feel emotionally compelled to do otherwise.
Henry and Jane agreed to retain NestEgg. We proceeded to develop the investment plan based on the following principles and beliefs:
Historically speaking, equities have produced returns far in excess of fixed income and cash, and we believe this relationship will continue over time. Equities have and will continue to experience declines, but these declines have always been temporary and, we believe, will continue to be temporary in the future.
Equities are the portfolio’s growth engine. It's what gives it the capability to maintain Henry and Jane’s lifestyle. We recommended a meaningful allocation to equities. Henry and Jane agreed and acknowledged the importance of commitment over the long-run.
We would not attempt to time the market. This means that we would not allow a viewpoint on future market performance, regardless of whether it is based on economic forecasting, geopolitical conditions, natural disasters, pandemics or otherwise, to drive the management of the portfolio.
The portfolio would be allocated to all major market components including domestic and foreign companies, large and small companies, and all major market and industrial sectors. To the extent the portfolio is allocated to fixed income, the objective would be stability, specifically to offset fluctuations in the equity allocation.
Since the portfolio’s objective is to produce a rising level of cash flow (not necessarily income) over Henry and Jane’s retirement years, the portfolio will not hold high-risk fixed income instruments such as “junk bonds” or emerging market debt.
The portfolio is designed to be tax efficient. Asset location (taxable versus tax-deferred accounts), reduction of unwanted capital gain distributions, and capital loss harvesting were key tax reduction strategies.
The portfolio will be funded by diversified positions utilizing SEC registered exchange traded funds and mutual funds. Portfolio holdings will be liquid at all times.
Positions will be monitored and evaluated by NestEgg on an ongoing basis and, when necessary, NestEgg will recommend adjustments. We anticipate that these adjustments will be infrequent. Under normal circumstances, the portfolio does not hold or trade in individual stocks.
In consultation with Henry and Jane, we agreed to periodically rebalance the portfolio to align the allocations back to the original, targeted structure.
Henry and Jane agreed to meet with NestEgg semi-annually to review their overall financial picture and evaluate any changes in their personal circumstances. The portfolio will be evaluated in its role as a funding mechanism for Henry and Jane to achieve their retirement goals.
Henry and Jane had worked hard and sacrificed during their careers to build their nest egg. After implementing the investment plan, Henry and Jane had a great sense of satisfaction. Their portfolio is now focused, coordinated, and they are committed to it. With NestEgg’s guidance, it is easy to manage, lower cost, and more tax efficient. Most importantly, with their new plan, they felt that their portfolio wasn’t just a random conglomeration of unrelated holdings, but was structured and optimized to support their most important financial goals.
Fact patterns have been modified and fictitious names have been used. The Case Study is designed to illustrate how we may provide services to our clients, but these services may not be suitable for you. There is no assurance that NestEgg may be able to help any client achieve the same or similar results. The Case Study should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results or satisfaction if NestEgg is engaged, or continues to be engaged, to provide financial planning services. Projections and retirement forecasts presented in the Case Study are not guaranteed and may not be indicative of future results.