Basic Financial Planning Questions
Answering basic financial planning questions go a long way towards determining if and how to tailor your portfolio in support of a single or special series of cash flow needs you may have in the future. Here’s some questions:
What extraordinary cash flow needs do you have coming up in the future that you want to plan for?
- A second home purchase (down payment)?
- College expenses for kids or grandkids?
- Funding a start-up business idea?
- A major discretionary purchase (boat, jet, country club membership)?
- Other?
What is the time horizon for the extraordinary cash flow need?
- 5 to 7 years out?
- 3 to 5 years out?
- 1.5 to 3 years?
- Inside 18 months?
Have you already set some funds aside in special designated accounts or do you have reserve accounts that can meet some or all of this need?
- No funds set aside yet, and/or no extra reserves are already available
- 10 to 25% set aside or available from current reserves.
- 26% to 50% set aside or available from current reserves.
- 51% to 75% set aside or available from current reserves.
- 76% or more set aside or available from current reserves.
What percent of your current semi-liquid (not retirement accounts) portfolio does the outlay represent?
- 20% or more?
- 10% to 19%?
- 5% to 9.9%?
- Under 5%?
Generally speaking, if the need from the portfolio is:
- Under 5% and inside 18 months: Let us know to put this Extraordinary need on your Investor Profile and for us to account for the need in our Liquid Reserve Target settings in our Trading System
- 5% or more and inside 18 months: Let us know and discuss actions to free up and set aside the funds in an interest-bearing Safety type asset (Bank Account, Money Market fund, CD, Treasury Bond) is in order and update to Investor Profile and Extraordinary Liquid Reserve Target settings in our Trading System.
- 10% or more and 1.5 to 5 years out: Definitely discuss with us and determine whether to set up a special account with a more conservative Investor Profile associated with the shorter-term time horizon account.
- 20% or more and 5 years out or more: Discuss the need with us to determine if risk temperament and stock/bond mix for your portfolio should be adjusted (more conservative?) or if separate accounts with different time horizons and Investor Profiles should be set up.
What if You Need Ongoing Distributions?
All the above examples are for extraordinary type needs. It is quite normal for us to be incorporating regular ongoing portfolio distributions for clients who are tapping portfolios as a primary (such as full retirement) or secondary source of income. If you have not been tapping your portfolio for ongoing distributions but want to begin doing so soon, let us know and we will update your Investor Profile and set up an automated way for you to receive regular portfolio distributions. Depending upon your distribution rate and Lifestyle Protection Analysis results, we may suggest a change to your portfolio selection.
We provide this general guidance in this article to help clients begin to understand the prudent thinking process we recommend when considering how to tailor your portfolio for upcoming cash flow needs. The general answers provided in this article are not a replacement for professional advice from us or any other advisor.
