We all remember when we landed our first good paying job. Not only did we feel proud of our accomplishment we also looked forward to pay day. Knowing it was going to be there week after week was of great comfort. Consequently, we built our dreams on the reliability of that income.
We call the second stage in our financial planning process, SECURITY--developing an income plan that is predictable to cover our client's basic needs, if feasible. We believe it is possible to have too much principal invested in unsecured and volatile markets. Experience has shown that many clients do not like the "whip-saw action" of the markets on their nest egg. While some have little choice in the matter, an ideal portfolio for many of our clients follows this logic:
Our focus at this stage is to help our clients shore up their cash reserves, which is an extension of their AUTONOMY goals. Secondly, we calculate how much additional income is needed after reviewing various income sources (e.g. social security, pensions) that are typically viewed as "guaranteed." Our aim is to produce sufficient additional income that allows us to instill confidence for our clients in their investments. The remaining assets become managed investments that fit our client's risk tolerance and objectives.
1,2Many of these instruments are typically issued by insurance companies that provide lifetime guarantees of income. The paying ability of these instruments is backed by the good faith and ability of the carrier. Managed investments involve risk including loss of principal.