August 7, 2007

Getting Older...And Protecting What We Got

I just returned from a week long Investment Conference in Boston, where I had the privilege of attending sessions led by some of the premier investment managers, government economists, business professors, financial strategists and authors in the country. While I was fortunate for this opportunity, I must admit I left the conference a little deflated. No, it has nothing to do with the recent market volatility or the economic outlook for the immediate future. It has to do with being a ‘baby boomer’ and having to constantly be reminded about how old that group is getting, and of the need to focus on the changing retirement paradigm and on implementing appropriate planning for this group. The Frye Financial Center gig is still a very rewarding one for me (yes, even in light of sub-prime mortgage messes and stock market corrections) and I have no plans to move on. Yet, focusing on the prospect of my own eventual retirement someday and planning for it is something I know I must do.

THE BABY BOOMER EFFECT; THE BIG SHIFT FROM WEALTH ACCUMULATION TO INCOME PLANNING

While every Investment and planning Conference I have attended over the past 20 years covered the three key areas of Wealth Accumulation, Preservation and Transfer, the greatest attention was always paid to the best strategies for creating wealth and managing money. However, there has been a major shift in focus, seemingly overnight, in the print media and amongst Academics and Economists. As with every sector of the economy, when baby boomers approach new life stages the impact and repercussions are very powerful. Suddenly we are all focused on the vast number of Boomers (born 1945-1960) approaching retirement. In fact, those born in 1945 have already attained age 62 and over the next 20 years America will experience a retirement exodus of historic proportions.

So, much of the focus now is not only on how to grow money, but also on how to protect it, and how to make sure the ‘boomers’ don’t outlive their assets.

IMPRESSIVE LINEUP OF EXPERTS AT CONFERENCE ALL AGREE…

The politicians, economists, money managers, and academics were all talking about the same thing---America is getting older. Speaking of which, Former President George H. W. Bush was there in his summer white suit looking a bit weathered but in good spirits. Upon learning that I was from Miami, Florida, he was very excited to talk to me about bone fishing in the Keys and his son Jeb. I almost got the feeling that he wished the Florida guy was in the “big house” rather than the incumbent son from Texas.

GROWING AND PROTECTING ASSETS;
GURUS ADVISE VISITING HARVARD AND YALE

There was much talk at the conference expanding upon the accepted “Modern Portfolio Theory” that leading investment advisors have been more or less following in the allocation of clients’ portfolios. The discussion and buzz surrounded a diversification style based upon the Harvard and Yale models of investing endowment assets. Both Institutions have achieved extraordinary investment results with their Endowment billions over the past ten years; Harvard 15% per year, Yale 17% per year---- with little exposure to U.S. stocks. In fact, both portfolios have only 12% allocations in U.S. stocks. So where are they investing their assets to achieve their stellar returns? I assure you it’s not C.D.’s, Bonds or money market funds. No, it is in a combination of foreign stocks, private equity, commodities, real estate, currencies, absolute return funds and other hedging vehicles. Sound scary? Not really. This approach is based upon greater diversification amongst classes whose returns are not correlated to each other, thereby reducing downside risk. In fact, combining different asset classes representing varying degrees of market correlation, and including some that provide absolute returns, produces a portfolio with a lower total risk factor than a portfolio with a more traditional diversification.

PROTECTING ASSETS---INSURANCE AND OTHER VEHICLES

Economists and Academics also lectured on different Insurance Vehicles and methods of protecting principal and guaranteeing income for life. With the boomers facing longer life expectancies and retirements, actuaries have shifted gears on many of these products and are recommending a fresh look at them.

Another attractive type of protective vehicle gaining popularity falls under the category of “structured” offerings.  These vehicles provide a “floor,” below which an investment cannot drop and a “ceiling” above which it cannot rise.

PROTECTING YOUR OWN PORTFOLIO

Yes, every one of us gets older each day---I certainly was reminded of that fact for 5 consecutive 8-hour days of seminars. On the other hand, I would like to think we all get wiser and more comfortable in our own skin with each passing year.

We at Frye Financial Center have, in fact, become wiser with our asset protection and income planning techniques. While our focus has always been to grow your portfolios with reasonable risk, we are ever cognizant of your concerns regarding the future; to live a comfortable life, provide for your family, and most of all, not to outlive your money. To that end, we are always studying the various models of preserving and protecting portfolios throughout the retirement years, or “income phase.” As our largest population age group approaches retirement, ever more sophisticated and effective strategies are being developed. 

In light of increasing life expectancies and our generation’s desire to maintain our lifestyle standards, effective retirement planning is a crucial and complex process that must be focused on in the years leading up to retirement. I would suggest that every client concerned about their own retirement income needs and/or protecting their hard earned assets, call our office to make an appointment to review their personal portfolio and investment strategy. Establishing your income needs, and then performing Retirement/Income projections and feasibility studies are necessary components in the planning of a successful retirement

Austin A. Frye, MBA, JD, CFP

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