CWG Insight Series: Goals-Based Investing Brings Comfort and Focus In Volatile Times

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You’ve heard from our Investment Committee quite a bit over the last few weeks and they’ve done a great job of communicating and executing on your behalf.  I began writing this last night after another tough day in the markets and felt it was time to talk less about facts, figures and economics and more about why we do what we do and re-ground ourselves in the plan.  Before I go on, I first want to commend all of you for remaining so calm throughout these volatile times. You’ve kept your focus on the long-term and it helps us do our jobs more confidently.  Nearly all the comments we’ve received from clients show why you have the wealth you do, and it makes being your advisors rewarding and exciting for us… “I’m an investor, not a trader, I make long-term decisions.” “Let me know when we are nearing the bottom, I’ll be ready to buy while others are panicking.” “This too shall pass.”

As a firm we are vocal about our belief in goals-based investing and at times like these, this investment philosophy truly helps keep things in perspective.  Every dollar you have should serve a specific purpose, whether it be lifestyle spending, paying down debt, security, retirement savings, college funding, a new beach house, etc.  As a part of our process, we initially seek to put in place a cash safety net consisting of three to six months of living expenses.  Generally, this is out of sight, out of mind in a high yield savings account, waiting for the day we need it…if it comes.  This is the “sleep at night” account that allows you to confidently move into the next bucket of investments and risk/reward.  A number of clients have small businesses and we often put the same safety net in place for the business in addition to the personal safety net.  There have not been many instances where a client has had to tap into these emergency reserves, but the coronavirus may require it and that’s ok, that’s why it’s there.

Once we have your safe money in place, we look to fully fund your retirement goal.  If you’re decades away from starting your retirement, we’re aggressively funding your 401(k)s, IRAs, retirement brokerage accounts and taking higher amounts of equity risk in your portfolios as we have the time to be patient.  As you get closer to retirement, we start reducing that equity risk and we get focused on the expenses we need to cover in retirement.  When we get to retirement, the job is not done, for most there will be another 30 years of living off the money saved.  The focus of your investments shifts some from long-term growth to income production and predictability.  Regardless of where you are on the retirement planning spectrum, these are generally long-term investments and we must remember to think that way when reviewing these accounts. This same strategy plays out for college education planning, savings and investing.   

Many of our clients are fortunate enough to “check the box” on cash safety net, retirement and education funding and have additional dollars to invest.  We then fund a “New Opportunities” brokerage account that can be used for major purchases (ex: beach house), new investments (ex: rental property), big vacations, and they become a pot of dollars tagged to take advantage of opportunities when they present themselves. These portfolios are focused on more moderate levels of risk and return as we may need to pull them out at a moment’s notice.  For those clients that have funded a New Opportunities account, these dollars can now be utilized to extend our covered living expenses timeframe. They also can be used to take advantage of the opportunities that are going to present themselves in the equity and real estate markets as valuations become more attractive.

There are other types of accounts and investments that might be used in a family’s plan, but these are the building blocks that ensure we assist our clients in achieving each of their goals.  By planning and investing in this goals-based framework, it’s easier to look at each of your portfolios and know what goal those dollars are supporting and subsequently why they are doing what they are doing.

As I wrap up, I do want to touch on some of the action our Investment Committee has or will be taking in most accounts:

  • As markets started to turn a few weeks ago, equity risk was reduced in the accounts whose intended goal is more near-term.  We have continued to de-risk in a number of these accounts
  • As we’ve been trending downward, cash has been raised along the way to give us “dry powder” to reinvest as there will be great buying opportunities
  • A slight tilt to large technology stocks was made on the equity side as they, for the most part, have performed a little better in this market
  • A small amount of gold was introduced into some portfolios as a hedge
  • Our team is working on a “Coronavirus Recovery” sleeve of investments to add into portfolios when the buying time is right.  This will consist of companies that should recover faster than most when the spread of the virus levels out.  More to come from the Investment Committee as they finalize this plan

I want to personally thank each of you for your trust in our company, our advisors and our process.  We will get through this together, this too shall pass.

Nick Kolbenschlag
Co-Founder & Managing Partner