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The goal isn’t to have you die with the most money. The goal is to allow you to maximize your spending over retirement without risking running out of money. Advice is always given based on how it aligns with your values, your purpose, and the life you want to build — not based on maximizing account balances. and front-loading spending during the years when you are healthier and able to spend more.
We look to unbiased academic research to form the models and the assumptions used to construct portfolios. For example, multiple studies have demonstrated small cap stocks outperform large cap stocks over the long-term, so client portfolios are weighted a little more heavily in small stocks. And academic research has consistently demonstrated technical analysis doesn’t work so we don’t engage in it (more than one Nobel-prize winning economists have called technical analysis “voodoo”)
Exposure to global economies in your portfolio are based on the proportion of the world economy each sector makes up. So while the US is currently approximately 60% of the global economy and therefore 60% of the stock exposure in client portfolios, when that changes your portfolios will adjust with the new reality. (The same holds true proportionally for other economies).
While statistics can’t predict the future, it does provide a powerful tool for modeling probabilistic outcomes to then make decisions from those models. This isn’t unique to investing and it works incredibly well in all sciences. We use statistical models to construct portfolios and mange plans including Monte Carlo analysis to calculate thousands of possible futures based on historical data to provide a probabilistic range of outcomes, correlation analysis to lower the risk of the overall portfolio, and stress-test analysis to measures the impact of changes in 8 core risk areas (such as 1% higher inflation or a 20% increase in healthcare costs).
For retirees we also use this analysis to annually adjust spending in retirement to spend the maximum responsible amount to achieve your goals. The actual spending amount is determined through a discussion of both the math and your evolving life goals, rather than blindly following the math.
We develop our models and the portfolios based on asset classes rather than individual companies. While I think Apple is a great company, I have no idea of whether scandals are hidden in their closet or if they will even be around in 20 years. But the asset class large US companies, which Apple belongs to, will always exist (so long as there is an economy anyway). So structuring the portfolio based on asset classes provides more sustainability and stability for the portfolios and allows for statistical models based on factors which are permanent — or at least as permanent as we can expect.
As with most things, investing for business owners is very different than it is for the average person or family. Your business is likely the single best investment opportunity you have, and not just because of the potential for outsized returns. Your business also provides your income, you exert more control over your business than any other investment, and you have the opportunity to understand and manage risk better than most other investments. Your business also represents the greatest risk to your wealth.
For business owners investing becomes more about protecting your assets than building your wealth. And any protection strategies must always be measured against the need to reinvest into the business to maintain stability and growth.
Yes, the costs I pay to XYIS are part of my business operations and are included in the AUM option. To help put it in context I’ve hired XYIS to support with administrative work rather than hiring an admin person (who honestly wouldn’t have the expertise of the XYIS team). So the cost of XYIS is just part of my business expenses and do not get passed on directly to clients.
The graphs show what a 100% equities portfolio at my firm would have done verses the MSCI ACWI and the other documents shows a 100% bonds portfolio. These are obviously not client returns, as a client’s portfolio is not going to be 100% equities and 100% bonds. Keep in mind, my goal is not to beat the market (academic research has demonstrated that is not possible over the long term without taking on extraordinary risk).
Instead, the goal is to construct a portfolio designed to get the returns necessary to meet your goals while reducing risk through correlation analysis. Correlation is the statistical relationship between two things (in this case asset classes) relating to how often they react or perform in the same way. This analysis and the subsequent portfolio construction allows for a greater reduction in risk without a corresponding greater reduction in expected return.
For example, if you had two highly risky asset classes that were perfectly negatively correlated (meaning they do exactly the opposite return at all times), they would perfectly offset each other if you put 50% of your assets in each. Obviously this is a ridiculous example, but hopefully it helps in understanding how the math works.
