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Conservative Wealth Management LLC
Registered Investment Advisor
Phil DeMuth, Ph.D

E-mail: Phil DeMuth
Tel: 323 876 3300

     
 

The Coming Baby Boom Retirement Catastrophe

A generation is living in denial. Tragically, many Baby Boomers and Gen Xers are going to find their retirements hopelessly underfunded when the time comes to break open their piggy banks.

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.

 

 

 

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