This post can be viewed on Investopedia here.

Question Headline:

Should I change my asset allocation strategy?

Question Body:

I am approaching 50 years old, single, and have about $2,000,000 in total assets ($1,000,000 in a 401(k), $500,000 in cash, and $500,000 in stocks). I don’t own a home but plan on buying one within the next couple of years. My monthly expenses are about $10,000 but if needed I could cut down to about $7,000. I have no debt. I am employed in a good position. Given all of this information, how well-positioned am I for the future? Should I be doing anything different with my asset allocation strategy?

My Answer:

One: Based on the information provided, I believe you are very well positioned for the future.

Two: Given the information provided I could not recommend an asset allocation for you. To determine the proper asset allocation (mix of stocks, bonds, & cash) for a client, I factor in goals, time horizon, and cash flows. It is unclear how soon you will be purchasing a home, or what price range that home will be. It is also unclear based on the info provided how much longer you intend to continue working.

Missing Information:

• When do you plan to stop working?

• How much are you currently saving and planning to save each year until retirement? What types of accounts are you doing this in, 401k, IRAs, taxable brokerage account, etc.?

• How is your 401k currently allocated?

• When do you expect to purchase a home?

• What price range will your home price be?

Hypothetical: If you were to start living off your accumulated assets today and require $100,000 (pre-tax) a year from your $2,000,000 nest egg, then somewhere in the range of a 60/40 – 75/25 mix of stocks/fixed income would give you the best probabilities of maintaining cash flows and growing the portfolio over the remainder of your life.

Lastly, based on the information you provided there may be financial planning opportunities to save/invest in more tax efficient ways. I assume that you are not eligible for direct Roth IRA contributions due to a “high income,” however you likely are eligible to make IRA contributions on a non-deductible basis and then convert that IRA into a Roth IRA. This strategy should be considered. You should also consider municipal bonds within taxable brokerage accounts.

– Wyatt Swartz

– Contributions by Bryant Goacher

– 6/25/2018

“What is your best idea right now?” This is a real question that somebody asked me when I was a couple of drinks in at a party. It threw me off guard. Capital markets were not at the forefront of my mind at the time. I was thinking more about if I should have a cocktail, a beer or a water for my next round.

Despite the situation, I instinctively went into my overall view of capital markets. I went over expectations regarding economic drivers, political drivers, market sentiment, and how all those things can impact categories of stocks moving forward. I gave a market forecast and the theme of how my managed portfolios are currently positioned. It wasn’t the worst answer, but it certainly wasn’t the best answer.

The best answer, and my best idea is to invest broadly in stocks for the long-term.  My expectation is that economic progress will continue to march forward, and that per capita standard of living will continue to rise, and that over the long-term stocks will continue to be the greatest investable reflection of this advancement/growth.  It is my expectation that stocks will continue to provide the greatest combination of return on investment and Liquidity over long-term periods compared with other asset classes. A diversified portfolio of stocks is my best long-term idea.

Lastly, “what’s your best idea right now” is a bad question. An investor asking that question is begging to be sold a product/hot tip/gimmick. There are 1,000s of salesmen out there that will sell you the greatest stock pick, insurance policy, annuity, hedge fund, etc. if that is what you are looking for. Good wealth management is about philosophy and process, not a silver bullet.

 – Wyatt Swartz

– 6/5/2018

The post can be viewed on Investopedia here.

Question: 

Is a front load of 4.5 percent a normal percentage when purchasing mutual funds?

Answer: 

4.5% is not unusual for mutual funds, however I would never recommend buying a fund with such a high load charge. There are many mutual funds that have no load charges to choose from, or which have an option to waive the load under certain circumstances.

If your adviser suggests a mutual fund with a high front load charge, I recommend that you ask them the following two questions.1) How does the load charge on this mutual fund impact your compensation? 2) Wouldn’t it be in my best interest to invest in a mutual fund that does not charge a frontload percentage?

Advisers that recommend frontloaded mutual funds to their clients tend to be Registered Representatives (brokers) paid on commissions/transactions. Registered Representatives are not legally obligated to make recommendations they believe are in their client’s best interest. Registered Representatives are legally obligated to make recommendations which are suitable for their clients.

I recommend investors seek out Investment Advisers operating through an RIA (Registered Investment Advisory), because they are fiduciaries to their clients. As fiduciaries Investment Advisers are legally obligated to make recommendations they believe to be in their client’s best interest.

– Wyatt Swartz

– Contributions by Bryant Goacher

 – 6/4/2018