NorthBay biz checks in with wealth managers and financial advisers to find out today’s best strategies for long-term investing success.
“May you live in interesting times.” Reputed to be the English translation of an ancient Chinese curse, these six words might be the economic epigram of the past few years.
Interesting times often call for innovation, especially when it comes to wealth management. Because we’re awash in uncertainty, says Bruce Raabe, president of Collins & Company Wealth Managers in Larkspur, there’s been a “bias toward holding cash.” According to the Federal Reserve, nearly $9 trillion is squirreled away nationwide in checking accounts, savings accounts and money market funds, which don’t generate much in the way of return, but are as safe as you can get—short of stashing your money in a mattress.
Other wealth managers, such as Timothy J. Delaney, a founding member of JDH Wealth Management, LLC, in Santa Rosa, take a different tack. Delaney believes the best strategy is sticking with your investment plan through turbulent times, because “current market conditions shouldn’t drive a client’s long-term goals.”
To source the best guidance for our readers, NorthBay biz asked investment experts from Sonoma, Napa and Marin counties for their strategic recommendations about how to manage money now.
Collins & Company Wealth Managers
Bruce Raabe has been developing and honing a wealth management process for high net-worth Bay Area families and private foundations for nearly two decades; market cycles run in his blood. Today’s economic climate calls for innovative strategies, he says, because very low interest rates, while helpful for homebuyers, “make it difficult for fixed income investors to receive attractive returns.”
He continues, “Timing the stock market is also difficult. The concept of buying low and selling high is attractive, but few have been able to do it repeatedly. This also creates short-term activity, but unfortunately, most people don’t get it right. The traditional allocation of having 60 to 80 percent of your money in stocks hasn’t played out well recently. Investors don’t know whether the economy is getting better or worse, and so the stock market has been quite volatile. It’s still 35 percent below where it was in 2007.”
To address this challenge, Collins & Company has turned to a relatively new tool: exchange traded funds (ETFs). ETFs provide investors with access to a group of diversified securities through a single transaction. This type of “holding account” lets Collins & Company “tap into different asset classes we think are compelling,” explains Raabe. Like individual stocks, ETF shares trade on domestic exchanges in U.S. dollars.
As an example, Raabe cites gold, a traditional hedge against inflation. “Five years ago, you would have had to buy gold bars directly from a reseller. Now, you can buy gold in a brokerage account through your computerized ETF. It’s like a mutual fund with no manager.”
The advantages of ETFs are:
• The ability to invest in asset classes that were historically hard to access. Collins & Company currently believes the markets of Australia, Brazil, Canada, China and South Korea offer above-average return potential, and invests in “broad-based baskets of securities” in each country.
• Low transaction fees
• Stability: nobody is changing what you own from day to day.
“Each ETF is in itself diversified, so while there’s still risk, you reduce stock market volatility,” Raabe says.
JDH Wealth Management, LLC
The cornerstone of JDH Wealth Management is relationship, which is apparent when someone approaches the Santa Rosa office: Life-size statues of the Peanuts gang greet visitors at the entrance. Charlie Brown stands by a pile of books titled Tracking Money, Sharing and Giving and Rainy Day Savings, with a piggy bank atop them labeled “Sunny Day Savings.” His sidekick, Woodstock, sits in a nest labeled “Security for the Future,” surrounded by—you guessed it—“Nest Eggs.”
“I’ve always had a desire to help people with their money,” says Delaney, one of the firm’s three founding partners. As a CPA, Delaney co-founded JDH Wealth Management in 1999 and follows his personal golden rule: The investments he recommends are those he personally owns. It’s a strategy he practices with all clients.
Delaney believes money is a byproduct of relationship, and his role is that of “financial tour director. At the end of every rainbow is a pot of gold, and my job is to help people find that pot of gold and hold on to it. I’m also a behavioral investment consultant. I help clients manage their behavior in addition to their investments, so they don’t shoot themselves in the foot.”
Delaney explains his strategy this way: “From 1988 to 2007, the average equity mutual fund returned approximately 11 percent per year. But average equity investors received a little less than five percent return, because they were jumping in and out of the fund. When the market drops, people’s pain goes up—but panic isn’t a strategy. I act as a buffer to help them ride out the turbulence.
“You can’t predict the market. More than 75 percent of money managers don’t beat the S&P 500 over the long term. It’s not because they’re not smart; it’s because you can’t outsmart the market.”
Delaney’s collaborative approach begins with discovering a client’s goals, objectives and history with money. He and the client work together to develop an investment policy statement (IPS) that describes the investor’s risk tolerance, needs and goals, and the investment strategy that will be used to pursue those goals. Once this has been completed, then the investing begins.
The key to a successful investment strategy is “quantitative and qualitative. The first is head-driven: How much risk should you be taking as a result of your objectives? The second is heart-driven: Can you handle it?”
Portfolio needs and asset allocation change when you quit your job, marry, approach retirement and the like, Delaney points out. This shouldn’t change as a result of market activity. “It has nothing to do with the market and everything to do with what’s going on in your life.”
JDH Wealth Management invests in mutual funds—equities, bonds, CDs, money market funds, real estate investment trusts (REITs), commodities (gold, silver, precious metals, futures) and individual bonds. Commodity funds actually “help to reduce volatility in a portfolio, so everything doesn’t ‘go over the waterfall’ at the same time,” he says.
While Delaney isn’t a high flyer when it comes to his clients’ portfolios, he does believe the sky’s the limit. Having earned his pilot’s license before he could drive, Delaney delights in flying his Cirrus SR22 (which boasts a built-in parachute for the plane itself) up and down the West Coast to meet with clients who live outside the Bay Area—and he’s often invited to stay in their homes.
That’s the essence of being a trusted adviser.
Wells Fargo Advisors
“If you want to be successful in capital markets, you must have a selling discipline,” states Noah Zim, a portfolio manager, financial adviser and chartered retirement planning counselor with Wells Fargo Advisors in San Francisco, who strives to guide his clients toward investment results that will let them enjoy their retirement. As the fundamental basis of your strategy, he says, “you need to know at all times at what price you’re going to sell any asset to protect against significant losses if it goes the wrong way, or if it becomes over-valued relative to other potentially stronger investments.
“There’s one—and only one—data point that incorporates all the information that every investor has about any given investment in any moment: the price,” says Zim. “Price is the final arbiter, the true reflection of the irrefutable law of supply and demand. Markets and individual securities are moved by massive institutions trading hundreds of millions, and billions, of dollars, and individual investors can actually endeavor to follow in the footsteps of those capital flows to stay in winning investments and avoid large losses, perhaps only understanding why the market responded as it did several days later.”
The two keys to knowing your “sell” price are position sizing (PS) and relative strength (RS). PS refers to the quantity of your total assets in any one position, so you always know what percentage of your assets you have at risk “depending on where your selling price is set, “ he says. RS measures the price performance of any security relative to another, or to a benchmark, which, he says, “gives you a much better chance to be in the asset classes and specific securities that have a stronger momentum of price appreciation through a process of comparison against each other, and against cash. “
The most important thing, says Zim, is to be invested in “a living, breathing asset allocation, rather than a static pie chart that’s based on assumptions made about the future. Because these assumptions are derived from historical averages, and historical averages may not have the predictive accuracy needed to drive the best investment decisions.
“Human beings are making the decisions to buy and sell, and their emotions are, therefore, hugely influential in the movement of asset prices. Emotion can never be quantified. That’s one reason the past is really no guarantee of the future when it comes to investing. It’s better, if you can, to watch what trends are actually occurring in the markets, and try to align your investment dollars with those trends rather than try to cast a predictive net with your investments over an uncertain future.”
Legacy Insurance Services
“The foundation of financial planning is to protect first,” says Debra Oberlin, founder of Legacy Insurance Services in Napa. “People have lost large amounts of their retirement savings due to a prolonged illness or accident. Can you imagine having $250,000 wiped out when going back to work is no longer an option?”
Alleviating this nightmare scenario is Oberlin’s mission. She helps families remain in their homes through the use of long-term care (LTC) insurance, by ensuring the money is there for quality care when you need it.
And it’s not just for the elderly. “The number one misconception is that LTC insurance is nursing home insurance, but only one in 10 people ends up in a nursing home,” Oberlin reports. An LTC policy pays for home care (see “Who Will Take Care of You?”).
“Whether you become ill, disabled or frail, you can’t remain in your home without a support system. The time to buy LTC insurance is in your 50s, while you’re still relatively healthy. It’s a worthwhile investment, because you can’t afford the alternative. As people age—and as we live longer overall—we see more chronic illness, and people who are worried about outliving their money.
“The average person will spend three years receiving LTC, and the average cost of that care is $80,000 per year. That’s $250,000. Why not use some of your portfolio’s interest or dividends now to invest in LTC insurance, thus keeping your principal intact?” she contends.
Oberlin has been in the LTC field since 1986, when she launched Sonoma Marin Insurance Agency. When she relocated to Napa four years ago, she renamed the business, which now covers Napa, Sonoma, Marin, Alameda and Contra Costa counties.
“I’m like a mortgage broker for long-term care insurance,” she says, citing two innovative, asset-based combination products that insurance companies are now offering:
• Life insurance with an LTC rider. If you never use it, your family receives the face value of the life insurance policy when you die. If you do use it, the money is paid out for long-term care instead of death benefits;
• An annuity with an LTC rider provides tax-deferred interest on your investment. If you need care, the annuity pays for it; if not, the investment passes to your beneficiaries.
“Suze Orman says, ‘No well-planned retirement should be without long-term care insurance. It’s the cornerstone of retirement security,’” says Oberlin.
“I have many people in claims right now who are thrilled to be able to stay in their homes with the support system and the money to pay for the care they need,” she continues. “This is why LTC insurance is so valuable. Finding an affordable solution for each person is the essence of my service.”
5T Wealth Management, LLC
Time, temperament, talent, technology and team comprise Napa-based 5T Wealth Management’s core philosophy, and a sixth “T,” trending, defines its modus operandi. Explains founder and chief investment officer Paul Krsek, “Whereas most financial advisers talk about asset allocation, we focus on asset activation. You want to own what’s going up and be out of what’s going down.
“Most people buy and hold for the long term. We’re active portfolio managers who track the major trends and know when the market’s moving from bullish to bearish.”
Toward this end, 5T Wealth Management recommends investing in high-quality bonds and gold, each of which has been trending for quite a while: Bonds have been in a bull market for more than 30 years; gold since 2001.
5T Wealth has developed nine “model portfolios” that allow clients to see the volatility and risk, so they can assess which model best meets their current and future needs. There’s even a “green” portfolio (called New World) that invests in companies considered to be environmentally friendly.
“The level of risk for any investor increases significantly if they’re buying stocks, commodities or anything other than money market funds, because there’s no established trend that would indicate you’re likely to make a profit,” explains Krsek. “So you need to ask, ‘Why would I want to own this?’ Most of our clients are between 50 and 70 years of age, moving toward retirement and looking for reliable places to make money and protect their existing assets.”
(The only exception to this scenario is a model for people already in retirement who need to generate a certain monthly income. Created in 2009, the Point Sur portfolio invests in stocks that pay high yield dividends and are very reliable—the dividend income “shouldn’t change even if the portfolio value drops,” says Krsek, making it an attractive option for someone who depends on this annual “paycheck equivalent.”)
“We view our clients as family members,” he declares. “Each of us at 5T Wealth is simply a steward of a client relationship. Someone before us may have established the relationship, and someone after us may carry it on. Therefore, we treat client relationships the same way we treat their investments: as if we’re preserving them for generations to come. Because we are.”
Where the buck stops
Clearly, there’s a wealth of creative, practical solutions to economic uncertainty that can preserve as well as enhance your financial resources. Where and how you invest will be unique to you and your circumstances. The most important thing you can do is to choose wisely so you can feel more secure in saying, “the buck stops here.”
