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worth.com
volume 23
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edition 06
Greenwood Village, CO
Leading Wealth Advisor
IFM Capital Advisors
Alan Beugg, Partner; Daniel Gamache, CFA®, Partner; Clayton Hartman,
Chief Investment Officer; Wayne Jamerson, Partner; Timothy Kneen, CIMA®,
Chief Investment Officer; Brian Sullivan, Partner; Thomas Dempster, Director;
Donald Graubart, Director; Jeffrey Gordon, Director
The science of smart investing:
How does one earn a ‘known return’
in their portfolio?
By IFM Capital Advisors
Most advisors rely on Modern Portfolio Theory, focusing on the capital
appreciation of portfolios; but there
is no guarantee that clients’ assets
will appreciate to the needed levels
year in and year out. In fact, from
2000 to 2011, the stock market had
almost no return, so any investors withdrawing 5 percent per year would have
dug a hole in their principal, thereby
impacting their ability to use their investments for income.
On the other hand, an old idea has
once again emerged as a solution.
It produces what we call the “known
return” (in dividends and interest payments), allowing an investor to know
that when his or her investment portfolio is used for cash flow, income will
be available. This philosophy offers the
ability to set a budget and a “known return” when managing income or distribution needs, without the need to dig
into the portfolio’s principal.
For example, compare two theoretical portfolios, starting with $5 million
in assets: One portfolio is invested in
the S&P 500, as an equity portfolio; the
other is a portfolio of 14 different asset
classes, all producing at least a 5 percent income and chosen for their lack
of correlation with one another. We
call this the “income portfolio.”
Now, assume each portfolio takes a
distribution of 5 percent in relation to
its year-end portfolio value, for cashflow purposes. The S&P 500 portfolio,
given a positive market environment,
from 2009 to 2013 does better than the
income portfolio, with an ending value
of $9.18 million (or nearly an 83 percent
gain in addition to the distribution
taken), compared to the income portfolio, ending at $8.02 million (or about a
60 percent gain).
But what happens when markets
are producing neutral-to-negative
returns? We looked back at 2000 to
2008 with the same parameters and
found that the equity-based model,
while you’re hoping for capital appreciation, requires you to draw on principal since the stock market doesn’t
average 5 percent, and the results are
dramatic. The equity-based model
portfolio value at the end of 2008 is
$2.2 million dollars (a loss of over 50
percent). In comparison, the income
portfolio ends up offering a final value
more than double the equity portfolio’s, at $5.62 million.
This study shows that drawing on
principal in a portfolio can have huge
consequences for investors trying to
recover when the markets produce
negative or neutral returns. Specifically, the equity portfolio investor cannot replace the income lost because of
the drop in portfolio value and must
therefore change his/her time frames
or objectives.
For those hoping to use their investment portfolio as a source of income, the
income portfolio offers a greater chance
at succeeding when it counts. In short,
you can either spend what you earn
through investing in income or spend
what you hope to earn through capital
appreciation. We suggest that no investor invest on a “hope” when they can
accomplish their goals with a “known
return.” For more information, please
contact IFM Capital Advisors for a detailed copy of our distribution study.
This commentary is provided by IFM Capital Advisors LLC (“IFM” or the “Firm”), a federally registered investment adviser, for informational purposes only.
Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may
have been impacted by events and economic conditions that will not prevail in the future. No portion of this commentary is to be construed as a solicitation to
buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this report is derived from sources that
IFM believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting
damages. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged,
hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated
with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio. IFM and its representatives are in
compliance with the current registration and notice filing requirements imposed upon registered investment advisers. IFM may only transact business in those
states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. For information pertaining to the registration status
of IFM, please contact the firm or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about IFM,
including fees and services, send for the firm’s disclosure brochure as set forth on Form ADV.
live
How to reach IFM Capital Advisors
At IFM, we share a single-minded dedication to
doing what’s best for our clients. To us that means
focusing all of our experience and the vast resources
of our firm around you. We would be pleased to
serve you and can be reached at 720.550.5551.
grow
make
“Let us weigh the gain and the loss
in wagering that God is. Let us
estimate these two chances. If you
gain, you gain all; if you lose, you
lose nothing. Wager then without
hesitation that He is.”
IFM Cap i tal A dv i sors
—Blaise Pascal, Pensées, 1661
Seated, left to right: Timothy
Kneen, Clayton Hartman,
Donald Graubart; standing,
left to right: Daniel Gamache,
Thomas Dempster, Brian
Sullivan, Alan Beugg, Wayne
Jamerson, Jeffrey Gordon
About IFM Capital Advisors
IFM Capital Advisors is an independent, state-of-the-art financial advisory firm. IFM’s partners have more
than 100 years of collective experience, with their practice focusing on family offices, institutions, individuals
and retirement plans. IFM is unique in that it has a multi-generational ownership structure, allowing their
clients to have consistent advice within the different generations of their own families. IFM is a partner
of Focus Financial, the world’s largest leading partnership of independent wealth advisors, which has
approximately $80 billion in total client assets and 31 partner firms. This partnership provides access to
what the firm believes are the best research and tools available. Additionally, IFM’s founding principals have
both developed and managed their own family offices and draw on this experience to serve their clients.
Assets Under Management
Available upon request
i l l ust r atio n b y ke v i n sp r ou l s
Minimum Fee for Initial Meeting
None
Primary Custodian for Investor Assets
Fidelity
Website
www.ifmcapital.com
IFM Capital Advisors
Financial Services Experience Beugg, 20 years; Gamache, 8 years; Hartman,
34 years; Jamerson, 18 years; Kneen, 25 years; Sullivan, 21 years; Dempster,
35 years; Graubart, 35 years; Gordon, 6 years
Professional Services Provided Planning, investment advisory services, money
management services, investment products, institutional consulting, business and
estate planning/succession consulting, family office management/consulting services
Email [email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
5299 DTC Boulevard, Suite 1350, Greenwood Village, CO 80111
4102 South Timberline Road, Fort Collins, CO 80525
worth.com
720.550.5551
970.530.5021
december 2014-January 2015
083
Alan Beugg
Partner
Thomas Dempster
Director
Daniel Gamache, CFA®
Partner
Jeffrey Gordon
Director
Donald Graubart
Director
Clayton Hartman
Chief Investment Officer
Wayne Jamerson
Partner
Timothy Kneen, CIMA®
Chief Investment Officer
Brian Sullivan
Partner
IFM Capital Advisors
5299 DTC Boulevard, Suite 1350
Greenwood Village, CO 80111
Tel. 720.550.5551
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
www.ifmcapital.com
REPRINTED FROM
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the evolution of financial intelligence
IFM Capital Advisors is featured in Worth® 2015 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this section have completed
questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained
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