When I started in this business, I was extremely green and ready to take on the world. The only problem was, I had no clients. So where does every top salesman or woman turn to??? Easy, their Parents. My parents were my first clients and have always been my client, so helping them manage their money has been a natural for me. In fact, I have clients ask me all the time, what would you do with our money if we were your parents.
To set the stage, one must understand who your parents are, because not everyone’s parents are going to be in the similar stage of life as you. My Dad is a retired teacher, and my Mom is nearing retirement. So we are in the retirement planning marketplace.
We want to have a balanced investment approach where different investment vehicles will accomplish specific goals. After getting a better understanding of their financial picture, (debt, savings, risk tolerance, goals, objectives etc… ) we then show them that there will be 4 basic “buckets” of money that they will maintain throughout retirement.
The first bucket is the Diversified Growth bucket, which is primarily invested in the market with the goal to grow their money. The main purpose for this money is to keep pace with inflation with the overall goal of growth (somewhere between the 6-8% average). This will be diversified across many different sectors and will mainly consist of equity holdings.
The next bucket is the Income Driven bucket, which will generate income throughout retirement. In this bucket we are more conservative than the growth but our main goal is to get income in the form of dividends or interest from bond holdings. This will also be diversified and will hold some bonds and dividend paying stock companies. Again this bucket does have market exposure and will fluctuate on a daily basis, but the overall goal is to get a yield of 3-5%. As interest rates rise we will always adjust our target goals in this bucket.
The third bucket is the Protected Income bucket, where we will find our guaranteed streams of income. This is where Social Security and Pensions (if you have one) will fall. If a client needs more guaranteed income, we will often fund an annuity to help generate that income stream. We will have no market exposure here, meaning the clients’ income stream will not change due to ups and downs of the stock market.
The last bucket is our Legacy bucket. This is where we pass money along to your heirs through the form of Life Insurance. If that is not a goal for the clients then we may not have exposure here. However, if we deem it necessary for some type of Long Term Care coverage, we will fund the necessary vehicle here. Often times we now use a life insurance contract that has a long term care feature, but the traditional route is Long Term Care insurance. In any case, this bucket is meant to pass on money to the next generation or to protect a portfolio should the client ever need some type of nursing home care.
Whether we’re managing our parents’ money or our clients’ money, we take the responsibility very seriously and want to maintain a disciplined approach. Every client is going to be different in some way, however it is our job as the financial advisor to show the client how their funds will be allocated so that they can meet their goals and objectives. In every situation, we want to be very intentional as to where our money is positioned so that it truly is going to work for the client in the best way possible.
