A portfolio is a partial answer, never the starting point.

The Portfolio Still Matters

Most people equate investing with picking the right fund, finding the best manager, or beating an index.

• Those things matter.
• But they also need perspective.

Portfolio construction is important. Investment discipline is important. Managing downside is important.

But the ultimate financial outcome can also be profoundly affected by decisions that have very little to do with selecting the next investment.

Portfolio construction is as much a planning and tax problem as it is an investment problem.

Correlation Matters

Diversification and asset allocation remain important components of portfolio construction.

But diversification depends, in part, on different assets behaving differently—and during periods of significant market stress, those relationships can change.

2022 provided a striking example.

The S&P 500 produced a total return of −18.1%, while the Bloomberg U.S. Aggregate Bond Index returned −13.0% in the same calendar year.³

Long-duration U.S. Treasury investments experienced even greater losses. The iShares 20+ Year Treasury Bond ETF (TLT) lost approximately 31.4% on a total-return basis in 2022, while the PIMCO 25+ Year Zero Coupon U.S. Treasury ETF (ZROZ) lost approximately 41.3%.⁴

Stocks fell. Bonds fell. And some of the longest-duration U.S. Treasury investments fell considerably more than stocks.

That doesn’t mean diversification failed as a principle — or that bonds no longer have an important role in portfolio construction.

It means diversification amongst market investments alone should not be confused with downside protection.

How we manage market-based assets — including our use of price, volume, volatility, position sizing, and disciplined exits — is explored more fully in our Investment Approach.

Which Account Holds Which Asset

What you own matters — where you own it can matter almost as much.

Your taxable account, IRA, Roth, 401(k), trust, and other assets shouldn’t be treated as unrelated accounts holding different versions of the same portfolio.

Where an asset is held can affect how its growth is taxed, how future distributions are treated, how Required Minimum Distributions affect taxable income, how much of Social Security may become taxable, and even future Medicare income-related surcharges.

Location decisions made in your fifties can become Medicare and tax decisions in your seventies.

• And that’s where portfolio design begins to become something larger.
• It becomes wealth management.

What If We’re Asking the Wrong Question?

If roughly 85% of actively managed U.S. large-cap funds trailed the S&P 500 over the last decade, perhaps the most important question isn’t simply:¹

Who can pick better investments?

Perhaps there are other questions worth asking:

• What if proper planning could mean hundreds of thousands — or even millions — of additional dollars ultimately reaching your family?
• What if the years between retirement and Required Minimum Distributions represent one of the greatest tax-planning opportunities you’ll ever have?
• What if the most tax-efficient way to leave qualified retirement assets to your heirs isn’t the most obvious one?
• What if the way you fund an irrevocable trust could matter almost as much as the assets ultimately placed inside it?
• What if reducing your lifetime tax burden could simultaneously create a more tax-efficient legacy for the people you love?
• What if creating predictable income from one portion of your assets allowed another portion to remain invested longer — reducing the need to sell investments during an unfavorable market?
• What if an insurance strategy could address mortality risk, provide tax-advantaged accumulation potential, or help create a more efficient transfer of wealth?
• What if the amount you don’t lose during significant market declines matters just as much to long-term compounding as what you earn during good markets?

What if the proper combination of investments, income strategies, tax planning, insurance, trusts and charitable strategies could create a better outcome than any one of them could independently?

What if the best solution to a particular financial risk isn’t an investment at all?

These aren’t hypothetical questions for the sake of being provocative.

They’re the kinds of questions comprehensive planning is designed to answer.

One Household. One Plan.

Your retirement doesn’t experience your taxable account, IRA, Roth, 401(k), trusts, insurance, Social Security, pension, real estate, and other assets independently.

Neither should your financial plan.

We evaluate the household as a whole—including assets we may not directly manage—because a decision involving one asset can create consequences, opportunities, or risks throughout the rest of the plan.

• The objective isn’t simply to construct a better collection of investments.
• It’s to determine what each asset should be responsible for accomplishing.

Where Planning Can Make the Difference

Once we understand your goals, income needs, tax situation, assets, family, legacy objectives, and the risks your retirement may face, we can begin evaluating which strategies actually belong in the plan.

Depending upon your circumstances, that may include:

• Retirement Income Planning. Creating dependable income for essential expenses and determining which assets should be responsible for providing it.
• Qualified Asset & Gap-Year Planning. Evaluating the years between retirement and Required Minimum Distributions for potential Roth conversions, distributions, charitable strategies, or other tax-planning opportunities.
• Tax & Withdrawal Planning. Coordinating taxable, tax-deferred, and tax-free assets to manage how—and when—retirement income is recognized.
• Investment Portfolio Design. Building the market-based portion of the plan around the growth, income, liquidity, tax, and risk requirements the plan establishes.
• Sequence-of-Return Planning. Evaluating whether predictable income or other resources can reduce the need to liquidate market-based assets during significant declines.
• Long-Term Care Planning. Determining how an extended-care event could affect income, assets, a surviving spouse, and the legacy intended for the next generation.
• Insurance Planning. Evaluating whether contractual solutions can more efficiently address mortality, income, tax, long-term-care, or legacy objectives.
• Estate & Trust Planning. Coordinating assets, beneficiaries, titling, and trust strategies around how wealth is ultimately intended to transfer.
• Charitable Planning. Evaluating whether charitable strategies can more efficiently accomplish personal objectives while also providing a philanthropic benefit as well as potentially improving the tax efficiency of the broader plan.
• Legacy Planning. Understanding not simply what you leave behind, but how different planning decisions may affect what your heirs ultimately receive and keep.

• Not every family needs every strategy.
• That’s precisely the point.

The plan determines which opportunities matter, which risks need to be addressed, and which financial tools may be appropriate.

This is consistent with the framework we developed in the Conversation Series: the strategy that helped accumulate wealth is not necessarily the strategy best suited to preserve, distribute, or transfer it, and different paths may produce materially different outcomes depending on the objective.

Performance Is Only Part of the Outcome

• None of this diminishes the importance of investment performance.
• It puts it in context.

Consider the mathematics of loss:

• A 10% loss requires an 11.1% gain to recover.
• A 20% loss requires a 25% gain.
• A 30% loss requires a 42.9% gain.
• A 40% loss requires a 66.7% gain.
• A 50% loss requires a 100% gain.

Protecting capital during significant market declines can therefore have a meaningful impact on the amount of capital available to participate when markets recover.

But investment management is still only one part of the equation.

What if thoughtful planning could create more additional wealth than incremental investment performance alone?

• What if tax planning preserved more?
• What if proper asset location preserved more?
• What if income planning allowed investments more time to recover?
• What if an estate, trust, insurance, or charitable strategy transferred significantly more wealth to the people and organizations you care about?

The objective isn’t to win one isolated part of the financial equation.

It’s to improve the outcome of the entire plan.

It All Starts With a Plan.

The greatest financial opportunities often come from planning, not just performance. That principle is also central to the planning framework in our Conversation Series.

A portfolio has a role … so do taxes … income … insurance … trusts … charitable strategies … estate planning … and risk management.

Our responsibility is to understand how those pieces interact—and determine which ones belong in your plan.

Because the question isn’t simply:

How should your money be invested?

The better question is:

What does your money need to accomplish—and what is the most thoughtful way to get it there?