How are you investing? Is there a strategy or plan in place? How did you arrive at this strategy? For a substantial number of investors, these questions don’t tend to have clear and understandable answers. The Kozak Financial Group, specifically our clients, know they are investing for income, by creating a pension plan like investment portfolio to fund their lifestyles for as long as needed. As people become wealthier, they tend to start to ask, “What else should I be doing with my money?” Here is our answer to that question:

Two Schools of Thought

                When it comes to investing “the next lump sum”, we are occasionally quizzed by our clients about how this “new money” should be invested. There is usually an assumption, with more money available a person should be doing more diverse kinds or styles of investing. In this industry there are two main schools of thought. 1. “You have more money; therefore, you can afford to take more risk!”    2. “You have worked hard to earn your wealth to this point, why gamble with it now?”

                This first school of thought tends becomes more prominent and harder to moderate as people become wealthier. One might start to hear from their wealthy friends or family about new and interesting investment opportunities not available to those people with less money at hand. Entire industries are based on investing for these high-net-worth individuals, all seemingly suggesting that with great wealth comes great opportunity to take extra risk. To an extent this is true, if you have a portfolio worth $10,000,000 and you choose to invest $100,000 in those highest risk opportunities, you probably won’t end up any worse off if the $100,000 investment goes under and becomes worthless. The trouble is this first $100,000 investment, whether it goes well or poorly, can become a slippery slope. We might be motivated to chase even higher returns if this first investment goes well or try to shore up losses by doubling down on a losing bet. Eventually in either case, the original “affordable” risk can grow to become less affordable. Not to mention, often these higher risk investments come with additional complications. Private investments, hedge funds, or private equity funds often all have lock up periods in which money cannot be withdrawn or the investment cannot be sold. This illiquidity might not mean significant issues in the short term, but longer term it means more careful cash flow planning to ensure your needs are addressed.

                The second school of thought would argue that because a person has amassed a large portfolio, they don’t need to take outsized risk on their investments to do well. At their core, these higher risk portfolios are attempting to beat the market. Some years they do, some years they don’t. But the person who invested in the market and gained a reasonable rate of return for the long haul probably ended up better off by avoiding the worst of the down years by avoiding the speculative bets. A balanced portfolio continues to work well for extremely wealthy people because they have even more ability to withstand the down periods in the market and in fact probably have the ability to buy more when prices are low, thus increasing their profits when markets rebound. Additionally, this “basic” portfolio set up means limiting complicating factors that can impede your investing process. The K.I.S.S. keep it simple, stupid, principle applies. Owning a portfolio of stocks and bonds means owning the ability to freely make changes and deposit/withdraw cash very quickly.

                So, what is one to do? How should more money be invested when there is already enough available for your lifestyle?

The Secret Sauce

On our team we tend to land firmly on the side of the second school of thought. If you are a very wealthy person, you do not need any additional risk to meet your lifestyle goals. What else should you be doing with your money? More of the same style you are doing already. Our first step would be to buy more of the glorious stocks and bonds you own today and add to those accounts to see them earning even more interest and more dividends. Not only does this mean greater annual cashflow to fund your lifestyle it also means greater cashflow to achieve your future goals whether you know these goals exist or not.

Countless clients have encountered new and interesting problems later in their lives. Anything from helping children buy real estate to paying for their own parents’ housing or medical needs. These less expected financial burdens can be a surprise. If extra risk was taken previously and those bets hadn’t paid off, there wouldn’t be enough cashflow to make these new goals achievable. It might mean a trade off between a lifestyle preference and one of these unexpected new expenses.

Adding to the existing pension plan like portfolio means adding more money to care for yourself and your loved ones in the future. It makes your estate goals easier to achieve, and it limits complexity in your investments that might otherwise hinder you. So, what is the secret to the sauce? From the start, no matter how much you began with, you had a plan in place. Our clients enjoy our pension plan like approach for its consistent income production and blue-chip orientation. That is our plan, and we are sticking to it.

What should you do?

                If this pension plan like approach appeals to you, give us a call: 403-260-0568. Having a plan and sticking to it means knowing what to expect and how to manage changes occurring in the markets and in your specific circumstances. However, this investing approach isn’t for everyone, if you would prefer to take more risk and perhaps be less liquid in your investing you should do your due diligence on those investments and make them wisely. If you would like to discuss your approach and how it might blend well with ours, give us a call. We would be happy to provide a consultation on how we can help you to better manage your total wealth picture.