Atlanta (PRWEB) December 11, 2011
Capital Investment Advisors is proud to announce that is has developed a fresh and simple approach to building an investment plan. The investment plan, which CIA calls “Filling the Buckets”, focuses on generating cash flow to supplement pension benefits, Social Security and other retirement income instead of hinging success on a rising stock market.
While dividend yield and interest income is an old-school, boring topic to broach for many financial advisors who prefer discussing hot topics such as hedge funds and private equity, CIA chooses to focus on real cash flow.
CIA believes it is critical for clients to understand how their investments are structured and managed. CIA’s goal is to communicate the strategy simply enough that a client could easily explain it to neighbors at a cocktail party. To that end, CIA uses “buckets” to illustrate its system. In essence, a CIA client’s investment portfolio is spread across three buckets with three different goals.
The Cash bucket must be filled first. It includes a client’s emergency reserve fund, money to meet short-term needs that are coming in the next one to three years, and some “Sleep Well at Night” or SWAN cash, which is equal to whatever amount the client needs to have on hand to feel comfortable, despite the vagaries of the economy, stock market and life.
Once the Cash bucket is filled, CIA moves to fill clients’ Income buckets. The Income bucket is filled with enough assets to generate the amount of retirement income the client needs to support their chosen retirement lifestyle. CIA works backwards to determine the amount of assets necessary to fill this bucket. If a client has $30,000 per year of Social Security income and their proposed retirement budget suggests they need $70,000 of annual pre-tax income, they have a shortfall of $40,000. If income portfolios were generating, on average, 5%, net of our fee, CIA would allocate $800,000 to the client’s Income bucket of investments.
CIA’s goal is to deliver consistent cash flow, despite fluctuations in the market. CIA does this by investing in a diverse group of income investments that goes beyond the typical practice is investing in bond mutual funds. CIA devotes considerable time and effort to identifying unique income opportunities at good values. CIA combines low-cost ETF index funds with high-yielding closed end funds, Master Limited Partnerships (MLPs), Energy Royalty Trusts, and REITs to provide a diverse mix of income sources. The combination of these assets is tilted based on the current market perspective and bias. CIA studies correlations of these asset classes from a price and distribution perspective with the goals of insulating client portfolios from major cash flow disruptions, and minimizing price volatility. CIA’s depth of knowledge in these niche markets allows us to capitalize on opportunities for their clients when they arise.
Once the Income bucket is full, CIA allocates the remaining assets to growth. The goal of the Growth bucket is to increase the value of the assets over time in a diversified, strategically-allocated portfolio using primarily index ETFs. Using independent research sources, CIA determines what areas of the equity market are attractive -- including international vs. domestic or large cap vs. small cap biases -- and weight them in allocations. As this portfolio grows with markets, clients can opportunistically shift some assets from the Growth bucket to the Income bucket to keep up with growing cash flow needs or the toll of inflation.
This “Filling the Buckets” analogy has proven an effective way to communicate the CIA investment philosophy to investors with all levels of financial sophistication. Clients often tell CIA that they appreciate the simplicity of the investment plan, and CIA’s efforts to thoroughly explain them. In a world where standard deviations, efficient frontiers, hedge funds, and private placements are confusing investors and clients, CIA is proud to stand for simplicity and total understanding of how the client’s money is working for them.
About Capital Investment Advisors: Capital Investment Advisors is a fee-only financial advisory and portfolio management firm based in Atlanta. Since 1994, CIA has been providing clients with financial strategy and management tailored to the client’s individual circumstances and objectives rather than advisor incentives or commissions. For more information on Capital Investment Advisors, please visit http://www.YourWealth.com or call 404-531-0018.