Strategies
While
our books provide an excellent guide
for the ordinary retail investor, our high net worth clients
can do better.
Better
Diversification: Virtually every portfolio that
comes across our desk is woefully underdiversified, exposing
its owner to needless, uncompensated risk. At Conservative
Wealth Management, we divide retirees' assets into two broad
strategies with low correlations between them: investing
a portion for capital appreciation, and a portion
for income. This allows us to pull more of your current
living expenses from whichever side is doing better that
year.
A
Better Capital Appreciation Strategy: Here we use
our proprietary DFA asset allocation model to access global
equities with a value and small-cap tilt, balanced by short-
to intermediate-term global bonds. These portfolios have
superior expected risk-reward characteristics to those outlined
in our books, so your money works harder for you, even after
expenses.
A
Better Withdrawal Strategy: Look what a difference
it makes whether you take the money from the best performing
asset class each year (Sell High) versus withdrawing the
money evenly from each asset (Sell Evenly).
The
chart below covers 1,000 Monte Carlo scenarios with $1000
invested into four asset classes:
When
income is needed, we break off a piece of whatever appears
to be the most overpriced assets in the growth portfolio
and sell it. A strategy this simple could vastly prolong
the life of your nest egg, leaving more money for your children
or for your estate.
A
Better Income Strategy: We select individual high
dividend stocks, real estate investment trusts (REITs),
as well as treasury inflation-indexed bonds (TIPS), as well
as domestic and international bonds of varying credit quality
and maturity that take advantage of the yield and credit
curves. We also will use leveraged closed-end municipal
bond funds (CEFs), emerging market bonds, high yield bonds,
Master Limited Partnerships (MLPs), Royalty Trusts, and
covered call income strategies for a small percentage of
client portfolios, at times when the risk/reward tradeoffs
make these worthwhile.
