A Balanced and Complementary Approach

We believe that an optimal investment strategy is imperative for any financial plan. History has proven that interest-generating investments such as cash and bonds have relative stability of principal. However, they provide little opportunity for real long-term growth due to their susceptibility to interest rates and inflation. On the other hand, equity investments have clearly enjoyed significantly higher expected returns historically, but are vulnerable to more severe volatility risk in the markets. To balance the need for safety and performance, we use several investment platforms to bridge the gap between traditional and alternative investment strategies. They allow us to identify and design the best investment strategy for your situation, and answer questions such as:

• Am I taking too much or too little risk with my investments?
• Are my assets divided into different buckets to address different goals and different time horizons?
• Are my investments generating unnecessary taxes?
• Are my accounts being rebalanced so I stay within my risk parameters?

How your personal portfolio is structured depends on a number of variables that we incorporate into your customized design. These variables include your current stage in the financial life cycle, your risk tolerance and investment time horizons. In this way, we are able to better manage your money with an equal emphasis on risk management and investment performance.

When planning for retirement, diversification typically references an investment allocation that incorporates various asset classes. However, a truly diversified investment strategy should go one level deeper, taking into consideration the tax treatment of one’s retirement savings. We call this Diversification 2.0.

Traditionally, individuals accrue the bulk of their retirement savings in tax deferred, employer sponsored vehicles like a 401(k), but this one-dimensional savings strategy limits one’s flexibility to mitigate tax liability during retirement.

Diversification 2.0 involves accumulating investment savings in tax deferred, tax favored, and taxable accounts during our working years. Implementing a customized Diversification 2.0 strategy gives investors the ability to better control this issue by making intentional withdrawals from various retirement accounts with different tax characteristics.

One benefit of this strategy may include the reduction of necessary gross portfolio withdrawals to meet a specified income objective, preserving the longevity of a retiree’s nest egg.

This table shows the tax impact of a 60-year-old withdrawing $100,000. Assume this $100,000 comes from an investment portfolio. (Assuming current marginal tax brackets and 15% blended tax rate on taxable accounts.)

Two retired married couples, all age 65, are seeking $20,000 per month ($240,000 annually) after taxes and Medicare premiums.

Couple #1 has only saved in tax-deferred accounts.

Couple #2 used prudent tax diversification and saved in tax deferred, taxable, and tax favored accounts.

What is the estimated tax savings of the couple that saved in various tax accounts compared to the couple that only saved in one?