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Our Investment Approach is all goals based

We typically split up our clients portfolios into 3 or 4 separate and distinct investment “buckets”

Bucket #1:  Emergency (cash cushion) 

This bucket is for all the money a client would need to spend over the next 12 months assuming they lose their job (income) and their expenses remained the same.  It’s typically for ultra safe investments (cash) and is usually between 1 to 15 percent of a clients net worth.  This money should be invested in mostly cash and very short term CDs (or longer term CDs that have no penalties to break early).   The money invested in this bucket will not keep up with inflation and it will typically weigh down the returns of the clients overall portfolio, but it is an absolute necessity for virtually everyone.  The biggest benefit of this bucket is that it provides clients the peace of mind to know that assets for pending expenses are safely segregated from the more volatile assets in their portfolio.


Expected annualized returns:  Approximately 1%     

Typical best case scenario: 2%

Typical worst case scenario: 0%


Bucket #2:  Safe fixed income (Bonds) with a small amount of inflation protection. 

This bucket is segregated for all the money a client would most likely need in years 2 through 5.  This could be for an upcoming wedding, college, a vacation home, and for general expenses that one would incur over the next 2 to 5 years.  Bucket #2 is typically 5 to 30 percent of a person’s net worth but that all depends on many different variables including; age, income, expenses, net worth, risk tolerance, job stability, etc.  Bucket #2 generally contains very safe, low risk investments such as short and intermediate term corporate bonds, municipal bonds, government bonds, and possibly some inflation protected bonds. 

Expected annualized returns:  Approximately 2 to 5%

Typical best case scenario (if interest rates fall and/or the underlying bonds credit quality improves): +10%

Typical worst case scenario (if interest rates increase and/or the underlying bonds credit quality declines):  -5%


Bucket #3: Equities & Real Estate (capital appreciation with some income)

This is for all the money that a client would not need to touch for at least 5 years.  Bucket 3 is often 100 percent invested in equities & real estate since these investments offer much higher long term expected returns than bonds and cash, but this bucket also carries with it a lot more risk, especially over the short term (<5 years).   Bucket #3 is typically 50 to 90 percent of a person’s net worth.   The more risk a person is willing & able to take, the more this bucket should be weighted towards smaller, out of favor (value) companies, and leveraged real estate investments, since these assets typically achieve much higher returns, especially over the long term (>10 years). 

Expected annualized returns:  Approximately 10% 

Typical best case scenario (during a euphoric bull market bubble) +40%  

Typical worst case scenario (during a financial crisis/melt down):  -40% 


Bucket #4:  Speculation/Gambling 

This Bucket is for all the money that a client would like to gamble with and would not mind losing 100% of.  For many clients, this Bucket should remain completely empty since there are no acceptable investments in this category (because gambling is not a prudent investment strategy).  For some clients that really enjoy the thrill and excitement of gambling, perhaps a 1 to 3 percent of net worth allocation to this Bucket could be acceptable (if the client really gets enjoyment and satisfaction from gambling).  The following types of securities would be considered gambling investments:  picking individual stocks, actively managed mutual funds, hedge funds, high yield loans (individual junk bonds), private placements, private equity/limited partnerships, venture capital, short term trading strategies, stock options,  shorting, IPO’s, currencies & individual commodities.  We consider all of these Bucket 4 strategies highly speculative because the expected outcomes are so unknown and so highly variable that it's virtually impossible to predict and reliably plan around them. 

Expected annualized returns:  Unknown.  Hopefully >10% (but usually worse, and with a ton of unnecessary aggravation)

Typical best case scenario:  unknown, since virtually anything can happen with these types of speculative investments.

Typical worst case scenario:  -100%.  Or possibly even worse if a client uses margin, leverage or shorting.     


We will adjust, rebalance and replenish these buckets periodically.  If there’s a major market movement (like during the 2008 financial crises) we will typically rebalance right then.  If a client has a major life changing event (such as death, divorce, sale of a business, big inheritance) we will typically rebalance right then as well, always keeping the clients asset allocations in line with their goals and their minimum and maximum risk threshold levels.     



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