Financial Fundamentals: Simplify together before you must do so alone

The Characteristics of the Ideal Investment

By Thomas K. Brueckner, Strategic Asset Conservation


Think about all the things you’ve ever owned that made you money. Real estate, stocks, bonds, cash value life insurance, annuities, mutual funds, 401(k) plans, IRAs, CDs, savings accounts, commodities, options, collectibles, gold, REITs, even managed futures. Why did you buy them? Undoubtedly to make money, perhaps subject to a lot of risk—but to profit, not to lose. What were the characteristics of these investments that attracted you to them, their benefits, perks, advantages? Let’s cherry-pick the best attributes of each and compile a list of the characteristics of the ideal investment.

 We’ve been polling our seminar attendees with this exercise for years. Here are their typical answers:

High-Yield Potential. Everybody wants growth, although the older we get, the more conservative we tend to become. Risk-based investments are great when they succeed as hoped for, yet they’re the cause of many a sleepless night when they don’t. Still, everyone regardless of age should have some money in the stock market, assuming their investment time horizon is long enough, or the funds aren’t critical to their retirement.

Safety/Stability/Guarantees. What else do we find in the stock market or real estate that’s not so good? Their answer is either risk or volatility. So what’s the opposite of those? We all love the safety of CDs; we just wish they were a little higher yielding these days.

Tax Advantages. Who do at least 53 percent of us write a check to every year in mid-April? Ah yes, our beloved IRS. In a perfect world, our Ideal Investment comes with some tax advantages. There’s tax-free, tax-exempt, tax-deferred, etc. What if you could make use of the IRS’ money, alongside of your money, as if it was your money, making you money within such an account? Better yet, what if you could do so far beyond the age of 70½, when most IRA accounts have to begin their taxable payouts?

Reallocation. Here’s a philosophical question for you: What are the three certainties of life? While we sometimes have fun with this one, the obvious answer is death, taxes and change. Things don’t always stay the same, and change is constant. Smart investors know that there are opportunities as well as risk amid such change, and that being able to adjust one’s allocation to various asset classes (e.g. small-cap growth vs. large-cap value) is critical.

Modest Liquidity. We have two needs in retirement: Income for the current year, and growth without loss for future years. Legendary investor Benjamin Graham described a good investment as one which “upon thorough analysis, promises safety of principal and a satisfactory return,” from which income was sufficient to last the rest of one’s life. Guaranteeing that income would have made Graham very happy.

Diversification. Putting all your eggs in one basket is never wise. Having linkage to multiple asset classes is the only way to have some parts growing even when others may be temporarily out of favor.

Probate Avoidance. Anyone who has ever had to probate the estate of a parent knows that the process can be grueling, expensive, and public—and should be avoided whenever possible. IRAs, annuities, and life insurance proceeds avoid probate and go directly to the named beneficiaries on the account. Anything else must be placed inside a trust to have the same protections, privacy, low expense and brevity of process.

Simplicity. As we age, do we prefer complexity or simplicity? I have been asking this question of our seminar audiences for years, and while it always gets a knowing chuckle, there’s a serious issue we can’t laugh off. Most marriages have a portfolio manager, the person who tracks the couple’s investments, rebalances the portfolio, buys and sells options, and organizes the consequences. The other spouse is disinterested, incapable or happy to let their partner handle it.

What happens when that portfolio manager spouse has a medical event—like a stroke—and can’t remember his own name a week later? The less-involved spouse inherits a mess. Two months of family caregiver training later, the spouse opens the next quarterly investment statement, turns to page 19 of 31, sees a large loss, and has no idea what to do.

Wouldn’t this spouse much prefer to have had the other’s assistance in picking the right advisor for just such times? And so our final encouragement is to simplify your holdings together, instead of one being left to do it alone.

Thomas K. Brueckner, CLTC, is president/CEO of Strategic Asset Conservation in Scottsdale, a conservative wealth management firm with clients in 18 states and six countries. He is a 2011 Advisor of the Year national finalist, a radio talk show host and a mentor to other advisors nationally. Contact: