By Jeff Gilbert
Clients always ask me how I manage my own money as if it’s a secret that I keep to myself. The thing about money management is that people often feel like no matter how much they learn about the latest techniques and trends, they’re never quite doing it right, that there’s always some better way to save or to invest.
With more than 30 years of experience in the financial services industry and as a CEO of a holistic financial management firm, I’m here to tell you that the way I manage my own money is not all that different from how I manage my clients’ money. Here are the three things I focus on the most when investing my own money.
Analyze Objectives & Constraints
I always say, “If it’s good enough for my clients, then it’s good enough for me.” This is why I start my personal investment plan the same way I start my clients’, through a thorough analysis of my objectives and constraints. This includes things like:
- Understanding and prioritizing my financial goals: Do I want to invest for long-term goals like retirement, intermediate goals like education funding for my children, or short-term goals like going on vacation or buying a new house? Sometimes I will be investing for multiple financial goals all at once, which adds a layer of complexity to the plan.
- Analyzing risk tolerance: Risk tolerance is the degree to which I can handle risk in my investment portfolio, both financially and emotionally. Some people are risk-averse and don’t like seeing large swings in their investments even if they can technically afford to lose the money. Other people don’t mind short-term volatility if it means they have a greater potential to earn more over time. Risk tolerance is unique to each investor and there is no right or wrong choice when it comes to this. Personally, I don’t mind taking risks as long as I know I have an adequate emergency fund and all my other financial bases covered.
- Time horizon: This category ties into which financial goals I have decided to prioritize. Goals can be short-term, intermediate-term, and long-term depending on when I will need the funds. Typically, the longer the time horizon, the more risk you can take with your investments.
Create a Plan
The next step in my personal investment process is to create a plan for both qualified and non-qualified assets based on the investment objectives and constraints outlined in the first step. I start by defining an asset allocation strategy (i.e., what percent should be stocks vs. bonds or other investments) and then I narrow down the strategy to specific investments.
Qualified assets are those that receive favorable tax treatment, typically because they are meant for retirement savings. Qualified assets include employer-sponsored retirement plans like 401(k), 403(b), or pension plans. Individual retirement accounts (IRAs) and self-employed retirement savings can also be considered qualified.
Generally speaking, these accounts should hold investments that will take advantage of both the tax-deferred characteristics (or tax-free in some cases) and the long time horizon until retirement. Typically, these accounts will start out with an aggressive allocation toward stocks (80/20) for younger investors and gradually become more conservative (60/40) as the time frame until retirement shortens.
Several types of investments make sense for qualified accounts:
- Stocks that you plan to hold less than a year
- Actively managed funds that produce substantial short-term capital gains
- Income-producing assets
These are all good choices for a tax-advantaged account since any tax consequences will be deferred until retirement.
Assets that are already tax-advantaged themselves, like municipal bonds and qualified dividend-paying stocks, are not good investments to hold in these types of accounts.
Non-qualified assets are traditional brokerage accounts that allow you to invest in a wide array of investment offerings. They do not have any tax advantages and thus require the most strategy when choosing which investments to use. Any money contributed will be on an after-tax basis, and any subsequent interest or dividends earned will be taxed. You will also be taxed on capital gains if you sell an investment for a gain.
The best investments for these accounts are those that have tax advantages, like municipal bonds and qualified dividend-paying stocks. ETFs are another good choice because they have significantly less turnover due to the passive nature of the investment. They follow a “buy and hold” strategy and are therefore much more tax-efficient than traditional mutual funds.
Monitor & Adjust
No matter which investments I choose, the final step is to continually monitor the plan and adjust as issues or new information arises. I will make adjustments based on any changes in my objectives or life events that may call for a modification.
Typically qualified assets (retirement plans) are only changed to rebalance the asset allocations back to the ratios chosen in the second step. Non-qualified assets are subject to much more change as they are at the mercy of life events and market volatility. No matter which goal and investment strategy I’ve chosen, I always track my progress and make changes as needed.
How I Can Help You
Successful money management and investing don’t have to be shrouded in mystery. At Balboa Wealth Partners, our goal is to give our clients the tools and resources they need to feel confident in their financial plans. If you’d like to learn more about our investment philosophy and how it applies to your portfolio, give me a call at 949-445-1465 or email me at firstname.lastname@example.org.
Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With over three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout the entire country. To learn more, connect with Jeff on LinkedIn or email email@example.com.
Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.
Securities offered through Kingswood Capital Partners, LLC, member FINRA, SIPC.
Balboa offers advisory services independent of Kingswood. Neither firm is affiliated.