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John’s Original Email

John’s Original Email. Susan, I sent this out to a new client pursuant to our conversation and it was met with a very warm response! FYI - John

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John’s Original Email

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  1. John’s Original Email Susan, I sent this out to a new client pursuant to our conversation and it was met with a very warm response! FYI - John Hi, As a follow up to our meeting last week, I wanted to summarize our recommendation for an action plan and suggest a conference call including _______ From this discussion I believe we can reach an agreement to move forward.      I see breaking the entire portfolio into three separate concepts so that we can clearly define the specific Purpose tied to each specific allocation, then our Method in constructing an investment program to suit that specific Purpose, and of course what Outcome you should expect in terms of risk and return, or income/growth. As we said on Wednesday, we also recommend you proceed with an integrated approach to putting these three plans to work, as they will work well together over time. We can all constructively criticize individual managers imbedded in the portfolios, or how much we allocate to one plan versus another, but having the three working together is an important element in creating an Efficient portfolio overall. Again, the three silos, or buckets, that we have identified are: 1. Purpose: absolute safety with very minimal risk; not to generate income for specific reasons like living expenses; not to generate capital gains or growth, but rather for peace of mind and stability. This element of the portfolio is the principal source of liquidity and financial security for _______. Method: CD's, Government securities, very short term municipal or AAA corporate notes, and money market funds. Outcome: no losses over the course of a calendar quarter and hopefully enough income only to keep the corpus at, if not slightly behind, inflation and taxes. 2. Purpose: very modest risk/reward profile in order to achieve a moderately superior return when compared to inflation and taxes over time. This bucket should be separated from #1 to be able to identify and track the specific risks and returns associated with this purpose. The return objective is to compensate for the conservatism in bucket  #1, but is still part of the very liquid wealth to potentially support ___ and you. Method: given the extremes we see in the bond market and volatility in the stock market, blend numerous traditional and non-traditional (alternative) bond managers together to create a highly diversified, modestly volatile, portfolio which is not reliant on any one asset class or manager to accomplish this risk/reward objective. Outcome: anticipate gains and losses to fluctuate from low single digits losses to high single digit gains (in today's current interest rate and inflation environment) over the course of a year, but with a return objective of staying modestly ahead of inflation and taxes. 3. Purpose: growth and capital gains tied to the much longer term objectives of the estate. Most likely this bucket will ultimately be passed down to your sons and not be needed to support you. Method: this is where the ________ Distressed investment fits well; hedged equity like ______ or even stock market index funds; high yield muni and corporate bond managers; other private equity and/or long standing successful hedge fund managers; non-dollar global stock and bond exposures. Outcome: strong risk/return results which stay well ahead of inflation and taxes over time. To be measured against an appropriate benchmarks to ascertain success. Client, we recognize that Wall Street and Main Street appear way out of sync with one another. Importantly, our view of the investment landscape and our current investment thesis is as follows:  "Long-Only Equities" are not attractive in the near term, nor are they grossly over valued either. Although history does not repeat itself so predictably, the stock market appears to be in a "Secular Bear Market" and may just fluctuate around these current levels for some time to come (secular markets refer to long term trends that can last ten to twenty years). And, the long-term Bull Market in bonds appears to be over, such that we would expect interest rates across the board to rising for some to time come, i.e., an emerging secular bear market for traditional bonds. What a wonderful environment to begin an investment program!  This is why we believe so strongly that we stress a non-traditional (Read: Alternatives) approach to both equities and bonds. We also believe in an approach that "feathers" the funds into the above plans.  It would be a lot easier to recommend to you a simple "long only" cash-stock-bond portfolio that we would "rebalance" occasionally as many in our trade do. We firmly believe we would be doing you a disservice albeit at our convenience.  Thus far, all the investment decisions we have made together have been well reasoned and successful, even if only small ones. This is the same way we want to approach launching the recommendations we reviewed together on Wednesday. Let me know when you are able to have this call with ________. We will forward ______ the recent portfolios and allocations from recent emails prior to our having a conference call. Does this make sense to you? Let me know if you feel we are moving in the right direction. All the best, John

  2. John’s One Page Overview with PMO Investment Silos: Daniel and Elaine Absolutely # 3 Long Term Growth $5 million # 2 VeryModest Risk $ 5 million # 1 Absolute Safety $ 8 million Purpose: Growth of principal to pass on to children Method: Higher risk reward investments, hedge funds, high yield bonds, private equity Outcome: Growth wealth for our estate, take risks now so next generation will benefit . “ We took good care of ourselves and family” Purpose: Principal preservation, no income just peace of mind, liquidity Method: Very minimal risk with CDs, very short term AAA munis, US Gov’t securities Outcome: No loss over the course of a year, hope to have enough interest to keep up with inflation “We never lost a dime” Purpose: Stay ahead of inflation and taxes, liquidity and support as needed Method: Diversified bonds, including non traditional bonds – expect modest fluctuation in principal Outcome: Offset the conservative nature of #1. Protection from inflation and taxes “Smart to stay ahead of inflation”

  3. Purpose: Feel confident I can have enough extra money to enjoy trips with my grandchildren. Be free to have fun. Know I can pay for any illness when I get much older. Method: Low risk with guarantees Outcome: Make sure there is enough money to retire on in 5 years Pension 1,800/mo Social Security 2,000/mo Fixed Annuity Guaranteed 4% 1,000/mo Joyce Retire in 5 years Income Target 3,000/mo basic + 2,000/mo fun 60,000 Plus taxes CDS 2% 300,000 500/mo IRA CDs 2% 300,000 500/mo OR Variable annuity Stock market risk/reward Guaranteed 5% 300,000 1,200/mo

  4. PURPOSE ALLOCATION Sylvia’s Three Main Purposes Income Purpose: I want to feel free to enjoy myself, make sure I will be able to cover any medical expenses, not worry about inflation making me poor when I am really old. Method: I want as much guaranteed as possible. Be very conservative. Outcome: I need to replace my salary with at least $60,000 to live on, but I really want $70,000 Growth Purpose: I want to feel smart and safe. Incase something bad happens I can afford to take of myself. If nothing bad happen I can have a really good time now and then. Method: Invest with a little more risk, some stocks are okay Outcome: I want some money to grow for the future- more fun, inflation, and medical. Giving and Sharing Purpose: I hope to maintain my commitments and teach my children the joy of sharing. It would be wonderful for the money leftover to go into a family foundation Method: I can take some risk with this money, Outcome: I want to have 5,000 a year to donate to my charities

  5. Sylvia’s Income Plan The Big Question: Do I have enough to retire? Total Expenses: $60,000, but I would like to have $70,000 Income Investments Genworth 390,000 IRA 220,000 Morgan Stanley 220,000 Eaton Vance 6,000 CDs 185,000 Dividend/Interest Income $12,000 Note: this is only 1.5% Checking Account Receives $72,000/yr Pension/Social Security $48,400Note: guaranteed income Expenses: 60,000 year 5,000/mo Estimated Taxes: 7,000/yr Paid quarterly 1750/quarter Extra income: $5,000 More dividend/interest income is available IRA $11,600 Total Estimated Income $72,000

  6. Sylvia’s Non-Income Investments Growth Family Trust $300,000 Purpose: Provide money for medical needs and extra income Method: Moderate growth investment, target growth rate of 6% Outcome: Live with confidence knowing I can take care of myself and still leave money to my children. Giving and Sharing Money NFS $196,000 Purpose: Fulfill my minimum commitment to sharing my wealth and helping others. I feel it is necessary for me to share without jeopardizing my health and basic living. I want my children to follow my example and use what is left in this portfolio into a family foundation Method: Moderate but not too risky investments, target 5% a year Outcome: Provide me with $5,000 each year for my charitable commitments

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