2023 was an intriguing year in that many indicators were flashing recession, yet the economy was resilient while inflation collapsed. We happily spend our time exhaustively analyzing data and mitigating risk, so our client partners can spend time enjoying their personal pursuits. The underlying data showed there was a tug of war between high fiscal […]
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Have you considered the mindset and thought process differences between operating a business for personal cash flow vs. earning an investment return? Have you performed a comprehensive financial forecast for you and your family considering your financial situation post-sale? Do you understand your investment options and a range of investment returns? Is your nest egg […]
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Are you planning on selling your private business but face a large tax bill? What is a Qualified Opportunity Zone or Qualified Opportunity Zone Fund? Do you understand how to increase your long-term tax efficiency while investing in real estate? “Taxes are killing us, but I don’t know all the strategies.” – Anonymous Pest Control […]
Does the changing landscape of estate tax exemptions concern you? Are you seeking a flexible and strategic approach to secure your estate for your beneficiaries? Does the idea of losing access to your financial resources worry you when considering estate planning strategies? Are you interested in reducing your estate tax liability while maintaining access to […]
David Senra is an animal and I love his podcast, “Founders.” Senra is authentically enthusiastic about studying historically significant founders and his pursuit makes me recall Charlie Munger’s thoughts on this process. “I make friends with the eminent dead.” – Charlie Munger The Founders podcast consists of Senra reading a biography of a founder, analyzing, […]
Does putting a large amount of your investments in a trust seem like too large of a commitment all at once? Are you comfortable giving investments and cash annually to your children without controlling how the money is utilized? Are you worried about losing control of your assets by putting them in a trust? Is […]
Are you planning on selling your pest control business but face a large, painful tax bill? Have you sold your business and rolled equity that you plan to sell for a gain? Are you aware of institutional investment strategies that could lead to >20 cents of tax savings on each dollar invested? Or substantially more […]
Do you know the true cost of holding excess cash in your business bank accounts? Would additional capital be helpful to fund your business growth while taking less risk? How many more team members could you hire (or not fire) if you earned more interest on your cash? Does your bank salesperson have any incentive […]
As of September 30, 2022, the current year is the worst start for bonds since 1926 as the overall U.S. bond market is down nearly 15%. While this is disappointing, it also creates a unique, once in a generation, tax loss harvesting opportunity. This strategy can reduce current and future taxes. Tax loss harvesting is […]
Do you have high, excess cash in your business cash account earning close to 0% interest while inflation is recently greater than 6%? Do you find traditional alternatives such as CDs or money market accounts similarly unattractive given interest rates 1% to 2% and long commitment periods greater than 1 year? Do you understand your […]
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Investment portfolios that are balanced to various economic and inflationary environments will at times contain certain holdings with unrealized capital losses. Tax loss harvesting is a tactical portfolio strategy to sell these holdings to capture the capital losses, which can then be used to offset the capital gains realized elsewhere in the portfolio. Further, the […]
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Do you have a disciplined process and documentation for your investment strategy? Does your salesperson/broker provide an Investment Policy Statement to set clear investment objectives, guidelines, and expectations? “Successful investment takes time, discipline and patience.” – Warren Buffett In our experience, no serious pension or endowment would invest without first creating an Investment Policy Statement. […]
Will your salesperson/financial advisor analyze investments they do not bring to you where they cannot earn fees or commissions? Has your salesperson/financial advisor ever thought your investment idea was a great idea if it meant you would be pulling the money from their control and fee structure? Has your investment advisor ever analyzed a company’s […]
- Do you have a disciplined process and documentation for your investment strategy?
- Does your salesperson/broker provide an Investment Policy Statement to set clear investment objectives, guidelines, and expectations?
“Successful investment takes time, discipline and patience.”
– Warren Buffett
In our experience, no serious pension or endowment would invest without first creating an Investment Policy Statement. At Essential Partners, our client partners receive the same institutional rigor and discipline. Further, this document is instrumental for our business clients to reinforce their internal controls and procedures.
During periods of financial market volatility, a clear Investment Policy Statement will reduce behavioral mistakes that often lead to people violating their asset allocation by selling low (fear-based loss aversion) or buying high (greed-based fear of missing out).
A well-crafted Investment Policy Statement used in conjunction with a long-term personal financial forecast establishes the discipline and long-term orientation for our client partners to reach their financial objectives without taking undue risk. Please review the example below.
INVESTMENT POLICY STATEMENT EXAMPLE: THE SMITH FAMILY
The purpose of this Investment Policy Statement (IPS) is to establish guidelines for the investable assets of the Smith Family that will be managed by Essential Partners.
OVERVIEW: Essential Partners will be managing the financial assets of the Smith Family and the primary goal is long term capital appreciation without undue risk in coordination with their financial goals and forecast. Tax mitigation strategies will be utilized to maximize after-tax returns. The allocation, outlined below, considers only the investable assets managed by Essential Partners.
OBJECTIVES & APPROACH:
- Produce capital appreciation over the long term with a reasonable level of risk
- Generate total portfolio returns 4-6% above the short-term interest rate on cash equivalents over the long term, which will allow the family to reach their long-term financial objectives
- Maintain a portfolio that is diversified among economic environments (rising/falling growth, rising/falling inflation) and asset classes (equities, fixed income, commodities, etc.) while tactically positioning the portfolio over time
- Invest primarily in a portfolio of liquid assets comprised of index ETFs while selectively utilizing actively managed investment solutions
Given the family’s current cash flow from the family business, it is unlikely they will require distributions for the foreseeable future and in fact, they will be adding to their investable assets with Essential Partners. However, if distributions are needed, Essential Partners will execute total-return-based distributions. In other words, distributions will be executed from the sale of investments as opposed to current income from investments.
Investments will generally be focused on quality securities within each asset class (majority large companies, U.S. government bonds, etc.). Low-cost index ETFs will typically be utilized while also investing in active investment solutions offering certain diversifying and return characteristics.
TIME HORIZON: The investment guidelines are based upon an investment horizon greater than 3 years, but the return expectations have a higher probability of being achieved with a longer period.
RISK TOLERANCES: Based on a score of 63 of 100 as measured by the Grable & Lytton questionnaire and conversations, the Smith Family’s risk tolerance is moderately high for the capital managed by Essential Partners. While volatility is not a true measure of risk, volatility is expected to be modestly less than global equity markets.
ASSET ALLOCATION: Assets are to be aligned as follows in the table to achieve the investment objectives. The portfolio will be rebalanced annually or when market conditions lead to a >20% deviation from target. Tax loss harvesting will be utilized to augment after-tax returns. The range and initial target allocation will be:
Non – U.S. Equities
U.S. Treasury Bonds
U.S. Treasury Inflation Protected Securities (TIPS)
Real Assets (Commodities, Gold, REITs, etc.)
Cash & Equivalents
MODIFICATION: This policy will be reviewed annually to ensure its continued appropriateness and the above-referenced ranges will only be altered after client partner discussions. The target percentage of each asset class may be amended at any time by Essential Partners.
Essential Partners is a registered investment advisor. The information in this report was generated as an example of a one-on-one presentation for a specific client and solely for that client’s own use. Please do not rely on this as your own.