Once we have determined your precise risk tolerance, leveraged through a financial plan, we build equities around your desired and appropriate level of safety in risk controlled assets such as Bonds. We approach equities, to be first and foremost, tax and cost efficient. Equity portfolios are built with individual securities, Mutual Funds, and ETF's with this in mind. We can take a boutique approach to your portfolio and manage around existing positions for tax efficiency and potential alpha.
The “Safety Runway” is a key strategy to help preserve and protect your lifestyle through times of economic and market distress. For many investors, lifestyle is often the highest value goal because it encompasses your ongoing, annual spending needs. It answers the question, “How much do I need in a portfolio today to fund my annual spending needs in the future?” The desire to protect lifestyle spending is usually paramount; hence, an investment strategy should aim to meet this important goal with a high degree of confidence.
PROTECTING YOUR LIFESTYLE
The Lifestyle Runway represents the number of years of lifestyle spending you want to try to protect and is comprised of a diversified portfolio of cash and high-quality bonds. It serves as a safety net that can help fund your lifestyle through the most uncertain economic environments. A growing body of research, known as behavioral finance, shows that many investors let emotions drive the investment decision-making process, often selling equities after a market downturn or buying at the top. Repeating these mistakes over time can undermine your ability to meet long-term financial goals. WinCap Financial's investment approach seeks to fund your goals while minimizing the adverse effects of these potential behavioral hurdles and thus improve your odds of successful long-term financial outcomes. Drawing the Lifestyle Runway investment down in periods of economic distress gives you the patience to have a long-term view for your equity assets, as it provides time for equities to recover their value. And with a longer time horizon, you should have more confidence in capturing the higher returns that equities historically have offered.
YEARS OF RUNWAY AND YOUR RISK PREFERENCE
This approach also empowers you to think about risk differently, defining it in terms of protecting years of spending rather than through less-intuitive measures such as standard deviation or volatility. Identifying your risk preference – that is, the degree of confidence you desire around reaching your goals – is critical to determining the number of years of lifestyle spending your customized Lifestyle Runway protects. Just as an airplane needs a length of runway to get off the ground, the Lifestyle Runway gives equities in your portfolio time to recover from downturns. Longer Runways, meaning those protecting more years with higher levels of overall portfolio exposure to fixed income securities, are generally more suitable for investors with lower risk tolerance or those owning significant assets in excess of their needs. Additionally, risk preference is often framed in terms of historic periods of distress. For example, during the Great Depression, it took 20 years for equities to fully recover, which includes adjusting for inflation and deflation, from their 1929 peak. Many investors during that time were forced to sell distressed equities to fund their everyday spending needs. Longer Runways require more dollars. A family with significant excess assets above and beyond their goals may choose to establish a Runway capable of funding lifestyle through a period such as the Great Depression or longer, whereas a family in the wealth-accumulation stage may instead choose to protect a few years of spending to cover a potential loss of employment. The Lifestlye Runway is built to help withstand the key risks to fixed income: inflation, deflation, default, liquidity, after tax returns and interest rate changes.
PORTFOLIO MANAGEMENT WITH THE BOND RUNWAY
As principal, capital gains, interest and dividends are available to fund each of your goals, we will use a total-return approach to help meet your goals and manage your Bond Runway, using both qualitative and quantitative information. The flexibility of the Bond Runway allows you to preserve the overall strategy in normal periods and draw the Bond Runway investment down in periods of economic distress, giving equities time to recover. At WinCap Financial, we define investment success as the achievement of your financial goals. The Bond Runway gives you the confidence to take a long-term view of your investment portfolio to help you achieve those goals.