Building your distinct portfolio

Kicking off our cash flow modeling conversation includes asking some questions. What after-tax cash flow will you need to fund your goals? When do you want to meet your goals? What liquidity do you need to maintain to sleep at night? We examine these questions and more, all based around three different levels of spending goals – and you set the priority of each:

• Needs: Essential expenses such as health insurance, taxes, mortgage payments, food, etc.
• Wants: Nonessential expenses, but higher priority goals such as vacations, travel, entertainment, family support, etc.
• Wishes: These can include things like a dream or vacation home, large purchases, legacy gifting, etc.

Next, we identify sources of reliable income, such as Social Security, pensions and annuity payments. We quantify your income sources to help determine if they can, at minimum, sufficiently fund your unique needs. If the income isn’t enough, we’ll analyze how your assets are allocated and evaluate how your portfolio could be structured to generate the right level of income.

Once we’ve identified how much of your retirement assets will be required to fund your needs, we’ll determine what withdrawal rate is sustainable to support your wants and wishes. Creating your customized spending policy, and setting up a sustainable withdrawal rate over time, will help you understand how much of your portfolio can be spent on nonessential expenses.

The only constant in the world of investing is change. So, after we’ve identified the important components of your retirement plan, the next step is to look to the future and analyze how well your resources can fund all of your goals through various market cycles and economic conditions. Our collaborative and robust tools can help you gain confidence that your plan is working for you today and will well into the future.

Whether you’re already retired or still planning for retirement, having ample liquidity and cash reserves to meet your spending goals is critical. Nothing can impair your future purchasing power more than being forced to liquidate at the wrong time. When it comes to how we get your money to work for you – our cash flow reserve strategy – there are three buckets we consider:

• Working capital: This is the account, most likely your checking account, you utilize for bill pay and your day-to-day expenses. It’s refilled monthly with reliable income sources and additional funds from your cash flow reserve account as necessary to meet your cash flow needs.
• Cash flow reserve account: This typically provides 12 to 24 months of cash flow needed to transfer to the working capital account. These funds are usually invested in very high quality, very short maturity municipal bonds, and the account is replenished regularly with dividends and interest from your investment portfolio. It will also be refilled opportunistically based on market conditions.
• Investment portfolio: This may consist of intermediate-term fixed income investments designed to preserve principal, produce steady income and provide diversification against volatile stock markets. Your portfolio may also contain longer-term equity investments designed to provide dividend income and long-term growth as a hedge against inflation and loss of purchasing power.

Academic studies have shown that the average investor doesn’t fare nearly as well as institutional investors when comparing investment returns. When constructing your portfolio, our team draws on the extensive resources of Raymond James Asset Management Services and its Institutional Consulting Services team to deliver our clients the same level of fiduciary care that much larger foundations, endowments and family offices have come to expect.

• Step 1: We develop forward-looking risk, return and correlation assumptions for different asset classes. We analyze these asset classes to determine if active, passive or both types of investments would be appropriate.
• Step 2: We fine-tune the asset allocation to build efficient portfolios from the selected asset classes.
• Step 3: Our due diligence team searches for high-quality managers who have consistently compensated investors for the active risk taken. The selection of investments is driven by the value managers add through active management.
• Step 4: We implement our investment process by making investment recommendations tailored specifically for you based on your goals, objectives, risk tolerance, tax situation and investment experience. Our recommendations may include:
• Passive (core) strategies: These are used in relatively efficient asset classes where there is not as much opportunity to add value through security selection. They also represent a lower cost option to active management.
• Active strategies: These investments are used in relatively inefficient asset classes, and are chosen because we believe they have greater opportunities for alpha generation – a measure of risk-based performance.
• Step 5: We review every element of the process to ensure that we are providing an institutional-quality investment program that works together with all elements of your financial plan to help reach your goals.