For those who are more concerned with protecting assets and minimizing their potential losses, Advance & Protect is a good strategy to consider for irreplaceable capital. As the markets go down, Advance & Protect seeks to limit the downside to -10%.

Irreplaceable capital is the amount of money we must protect from a downturn in the market. This is different from not wanting to lose money; no one likes to lose money. 

Irreplaceable capital is money that must be preserved as much as possible because if it’s not, you may suffer a major change in lifestyle, which could even change the entire financial plan.

While that seems obvious, there are reasons some people may overreact to investment losses. The main reason is that emotionally we all feel losses more than wins.

For instance, if you lose 20% of $1 million, or $200,000, you will have $800,000. If you only earn a 20% return on the $800,000, you will have $960,000! You need a 25% return on your money to get back to the original investment. You need more money to get back to where you started. Feel that discomfort?

Timeline Matters

Once choose an Advance & Protect strategy on irreplaceable capital, we then need to go back to our client factors. Do you need the income from the portfolio in the near future? If so, we will choose a strategy which provides income. We may choose a combination of the tried and true dividend paying stocks, some capital appreciation, and bonds. We may also incorporate more advanced investment strategies that require very experienced management and trading.

Some clients may choose an allocation of growth and alternative investments because of the potential for return and diversification. These two allocations may be a smaller or larger part of the portfolio, depending on timing. 

We might view domestic investments as more or less risky, and we may use global investment strategies to ensure we have diversified investments in the portfolio. The key here is to educate and prepare you on any added risks.

Time plays a critical role in developing strategies for retirement. During retirement planning sessions, you may be in the first stage of saving and investing. In this situation, we may start with a more growth-oriented strategy. However, this all depends on the answers to the initial client questions. 

Just because you recently started investing or are younger does not mean we automatically put you in a growth strategy and send you on your way.

If you are approaching retirement age, we may choose to sell growth investments. Let’s pretend we have a couple of great years in the market. We may save two years’ worth of funds to cover fixed living expenses and move them into an irreplaceable capital strategy to preserve your wealth, in case there is a market downturn the year you retire. This strategy gives us a cushion of time when we don’t have to sell other shares at a lower price point.

When it comes to strategy selection, keep in mind the two categories in building a disciplined investment process. Combining investment management and financial planning provides us with guidance to create the right roadmap for you. We must focus on both your category factors as well as the economic factors and work with both to create the best investment strategy for you.

This content is for general information only and not intended to provide specific advice, an endorsement, or recommendations for any individual. No strategy assures success or protects against loss. To determine what is appropriate for you, consult with an advisor. Alternative investments can be volatile, and you should be aware that you may lose all or a portion of your investment. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards. A diversified portfolio does not assure a profit or protect against loss in a declining market. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.