CPF Texas can provide you with a balanced and disciplined investment solution to help you meet your financial life goals.
In order for a portfolio to be able to meet your financial life goals it should:
- Be integrated with a comprehensive financial life plan
- Provide risk control via true diversification
- Have a program to transition from Asset Accumulation to Reliable Income Realization
- Promote discipline in order to follow the plan and maintain a long-term perspective
Effective portfolio design requires a diligent process. The process is dynamic and ongoing. It has cycles that coincide with the changes in your life that are both foreseen and unexpected.
The objective of the process is to maximize the likelihood that you will have the money you need when you need it. Capital markets are unpredictable. Investment planning deals in probabilities, not certainties. But the process incorporates knowledge and discipline to put the odds in your favor.
A well designed portfolio should meet the following objectives:
- Predictable income
- Protection and growth of capital
- Protection of purchasing power
Previously, many investors focused their exposure to capital markets in traditional or "core" investments - U.S. stocks, bonds and cash. That approach certainly worked well in periods of sustained bull markets such as 1982-2000. Investing felt like sailing: the winds of the markets took you where you wanted to go. The past decade (2000-2011) has felt like rowing - into a headwind!
If being invested in capital markets today is more like rowing than sailing, then a different approach is required. By properly combining alternative assets to traditional asset classes, the following is potentially achieved:
- Increased diversification - alternative assets provide exposure to asset classes that have reduced overlap with traditional assets. Alternative assets can include: Real Estate, Commodities, Emerging Markets, Currency, Managed Futures, Equity Market Neutral, etc.
- Lower correlation - alternative assets have a tendency to move somewhat independently of traditional assets.
- Lower volatility - with lower correlation typically comes dampened volatility, giving the investor a "smoother" ride.
- Better performance - alternative assets potentially offer a higher reward for the risk taken.
It's All About The Income
Gone are the days of institutions providing a secure retirement. Pension plans are the exception, and Social Security only provides a fraction of the income needed. Rate of return should not be the driving factor in building a portfolio to meet your financial life goals, instead your portfolio should be focused on providing reliable income. When the markets go up and down, but your predictable income remains steady it becomes much easier to weather the financial storms.
For those reasons the planning process becomes vital to portfolio design. In developing a plan to convert assets to income, the following steps are taken:
- Determine Essential and Discretionary Expenses
- Determine Reliable Income Sources
- Position Portfolio to Meet Essential Expenses
- Balance Remaining Portfolio for Opportunity
The information provided here is intended to be general in nature and should not be construed as investment advice nor a recommendation of any specific security or strategy. There are special risk considerations associated with each of the strategies mentioned and they are not suitable for all investors.