Tips for Customizing Investment Approaches

When was the last time you looked at ALL your investments? (Including your spouse's) I'm not talking about just checking the balance, either. Has it been: 👉 1 month? 👉 6 months? 👉 Can't even remember? You're not alone. Frankly, it's one of the reasons why I have a job. You get busy and don't get around to looking at them. I get it. The good news is that your perspective is probably correct. You don't look at them because there is nothing you would do about it anyway. Am I right? In fact, Warren Buffett once said: "We do not have, and never will have an opinion about where the stock market will be a year from now." That's because you, me, or anybody else has no control over the market. But you do get to choose: ✅ Your investment objectives. ✅ Your current investments. ✅ Your time horizon. ✅ Your tax situation. 1️⃣ Start with your investment objectives. Why are you investing? 📈 Seeking growth of your investment principal? 📈 Need current investment income? 📈 Do you want growth AND income? 2️⃣ Think about your current investments. Are your investments coordinated? Is there: 🚫 Excessive overlap? (Holding the same fund in multiple accounts) 🚫 Misalignment with your risk tolerance? 🚫 Lack of diversification? What if: 📉 We have another market correction? 📉 Interest rate go up? 📉 A recession occurs? How will it affect your portfolio? All your investments should be chosen with a specific role or job in mind? 3️⃣ Let's talk about the time horizon. How long before you need this money? ⏳ Longer the timeframe ➡️ More risk acceptable ➡️ Higher return potential ⌛ Shorter the timeframe ➡️ Less risk acceptable ➡️ More principal protection 4️⃣ What about your tax situation? Will you: 👉 Be in a higher or lower tax bracket in the future? 👉 Have large required minimum distributions? 👉 Need to show lower taxable income to qualify for higher health care premium subsidies using the Affordable Care Act? A lack of good tax planning potentially wastes hundreds of thousands of dollars. You want to get it right. Simply put, your investments shouldn't be chosen based on the hot stock pick of the day or even the highest rate of return. They should be chosen based on the outcome you're looking to achieve. If you're within 10 years of retirement, it is paramount you have a plan that addresses: ✅ Your investment objectives. ✅ Your current investments. ✅ Your time horizon. ✅ Your tax situation. Without a PLAN... ...you're banking on HOPE. Hope is not a plan. ___________ P.P.S. I'm trying to post here regularly. Follow me Patrick Shope, CWS® if you want more no-nonsense retirement planning tips, strategies, and ideas.

#nonarmchair #directindexing # 27: Dynamic Direct Indexing, part 3 Our previous posts discussed an investing approach that fuses initial portfolio construction and ongoing portfolio management into a single step, without an intermediate target allocation. An ideal portfolio should depend on the securities that are desirable to hold: liquid, cheap to trade, good ESG scores, provide diversification, etc. The industry-standard approach maps those requirements into a target allocation or custom index. The main idea of DDI is to express desirability in a more abstract way that can be re-evaluated every day, to account for the changing desirability of securities over time (e.g. an illiquid stock becomes liquid later). Using the Mediterranean diet analogy from the previous posts, this is like cooking (constructing a portfolio) based on the ingredients (securities) that you can buy at your local market (stock market) on any given day, instead of what the recipe (target allocation) says exactly. If the supermarket doesn’t carry shallots (perhaps too niche) or watermelon (not in season), you should can still follow the Med diet by using what’s available and desirable (cheap, fresh, etc.) There’s another angle though. Ideally, you’ll also use what’s in your fridge. You may have experienced “Costco angst” - e.g. you must use up the 10-pack of fish fillets before it goes bad. Having too much of an ingredient can make it desirable to use. Somewhat similarly, a concentrated position should affect the ideal portfolio. A standard approach is to do a portfolio optimization using a factor model to offset whatever you are forced to be overweight in. E.g. a client with a huge AAPL stock grant will end up holding less (or no) tech, large-caps, US stocks, and so on. This approach tries to ‘cope’ with concentrated positions and change the final portfolio, but the target itself is the same, even though it’s an unachievable ideal. In practice, this isn’t a problem because an advisor can construct an allocation that takes existing concentrated positions into account. Things get harder when the concentrated position changes over time - e.g. with quarterly stock grants. Either way, the portfolio’s ideal risk level is constant; it depends on the investor’s risk profile, not their holdings. However, if we do use a target allocation, perhaps ‘coping’ isn’t enough, and the target itself should change. E.g. if a client inherits $1M of XOM, perhaps we should include securities in their portfolio that aren’t part of the target (i.e. not even at a tiny target percentage), such as commodity / energy ETPs that may offer offsetting exposure. To summarize, the limitation of a custom index is that it may need to change over time, and it’s not always practical to rely on manual intervention. These posts are starting to sound theoretical, but our next post will tie everything together. #wealthmanagement #wealthtech #roboadvisor

One potential change to your investment strategy could be looking to earn royalties on investments as a minority investor rather than being paid a percentage of profits based on equity. For example, consider owning a 33% equity stake in a growing organic skincare company. You may agree on a gross revenue royalty, providing you with a share of revenue, which can be a better option than profit-based payouts. This approach encourages alignment, transparency, and accountability in your investment strategy. It also helps prevent you from being illiquid in a deal for a decade while you cross your fingers for an exit. If you can get at least your initial investment back as a royalty, you can recycle that cash into another deal and pick up another equity stake or upside - and it de-risks your transaction every month/quarter as you get capital back vs. waiting until profits are available or an exit happens. #investing #investments #capital #investorclub #familyoffice #privateinvestors #business #CFO #privateequity #CEO

One Size Fits None: Tailoring Investment Goals for Different Life Stages Picture two individuals: one is a 28-year-old, single, renting, and relatively new to the job market. The other, 49 years old, married, a homeowner, a parent to two children, and nearly a quarter-century deep into a career. Clearly, their lives look quite different—but what about their financial goals and retirement plans? Diverse Lives Demand Diverse Strategies: • Risk Tolerance & Time Horizon: The 28-year-old might be more willing to take on riskier investments given their longer time horizon and fewer immediate financial responsibilities. Conversely, the 49-year-old might prioritize stability and preserving capital to support looming college expenses and a closer retirement date. • Income Allocation: While the younger may focus on growing wealth and perhaps paying off student loans, the older investor might be more concerned with maximizing retirement contributions and planning for estate management. • Lifestyle Goals: The younger individual might save for travel or a home purchase, whereas the older might be setting aside funds for their children's education or to pay off a mortgage. Why Customized Investment Plans Matter: A financial advisor who offers the same investment plan to both individuals aren't just oversimplifying; they're potentially jeopardizing each client's financial future. Tailored strategies are crucial because they account for individual circumstances and goals. The nuances of each person's life stage, family dynamics, financial obligations, and career longevity all influence the approach to investing. Consider This: Would you trust a tailor who uses the same pattern for every client, regardless of size or style preference? Just as bespoke tailoring fits each unique body, bespoke investment planning fits each unique financial situation. Thinking about your own financial future? Whether you're just starting out or gearing up for retirement, let's discuss how a personalized investment plan can address your specific needs and goals.