With a swelling millionaire rank in our family of families, we had been profiling the growth in value of retirement assets of one such family who have been with us for 6-plus years and will likely remain with us for the next 60. And a goal they had, though not exclusively written in stone was to hit that million dollar mark by the time they turn 40. Now granted, a million dollars is not what it used to be but hitting that mark that early in one’s life assures this family a lifetime full of choices and happier times.
A bit about this family – Husband and wife in their mid-30′s, both working in high-tech with two young kids, ages 4 and 1. That’s when they started with us. Now both of them have either crossed that high-water mark or are about to.
Plan – An aggressive saving and investment plan with a custom portfolio designed to help this family reach that and other goals.
Portfolio construction – The portfolios we design and implement are based off of an approach deemed the Core and Explore. 80 to 90% of the portfolio forms the Core with the remaining gap filled by Explore. The Core of this family’s portfolio comprised of precisely 11 different asset classes and market sectors with investments that include domestic and international stocks, small, mid and large cap stocks, growth and value stocks, emerging market stocks and a sprinkle of short and intermediate term bonds. The Explore portion of the portfolio is invested in ultra-small, cash-flow rich companies that is intended to add a bit of spice complementing the otherwise dull and boring Core. The Explore portion has had a good run though and is in the process of getting restructured as justifying valuations for some of the companies in the portfolio is getting to be a strain. But this Explore segment at some point will likely wander into other Alternative investments such as real-estate partnerships, hard money lending, investing in early-stage companies etc. and we will keep updating that aspect of the plan when the time is right. But one thing is certain – this portfolio and any portfolio we design and implement will be based off of hard data, portfolio design theory (aka pension planning) and a set of rules that will not be deviated from. No speculation, no buying or selling of investments based on charts or technicals or astrology (White Elephant Trading Company) or that thing called whim.
Ideal holding period for any investment in this portfolio or any portfolio we implement is forever. We hate to sell anything from our portfolios and hence we are extremely reluctant and lethargic buyers. We sell investments strategically only if the allocation to that aspect of the portfolio gets out of whack from the original design and intent. The portfolio of course has to and will change and evolve as the family goals and objectives change and as retirement approaches.
So what’s the latest – The 5-year mark was crossed about a year back so we are a bit late in reporting the numbers but with many thanks to the market Gods and this family’s remarkable ability to save, that goal was met in time.
The net Internal Rate of Return or IRR for this portfolio comes out to about 11.91% annualized. That’s very close to what you have been getting as an update to your plans if you happen to be in a similar risk profile and that’s great. IRR also takes into account the several intermittent contributions to this family’s plan so there might be minor differences between the two but they both project the same information.
This relatively rapid growth in net worth is predominantly attributed to this family’s ability to save and invest aggressively in an unusually favorable market environment and in an equity-heavy portfolio. We do not expect this to be repeated at least in the near future and hence more savings is likely going to be the only magic this time around.
Taxes – Almost no selling means negligible taxes to pay and that’s by design. Taxes on dividend income were still due though. Access to tax-deferred and tax-free accounts meant whatever rebalancing was required was done in those accounts to as large an extent as possible. Big taxes only came due when a portfolio company got acquired or was taken private. Example, Gen-Probe Inc., a company this family owned that was acquired by Hologic Inc. for $3.7 billion cash and taxes were of course due on that 25% capital gain.
So that was a quick and a long overdue rundown about one family’s finances. But that’s just a piece of all the stuff we do for our families so if this return thingy is all you are after, you are likely going to be disappointed. Not that we will not seek those risk-adjusted returns if they are available in the marketplace but there are no guarantees. There is a guarantee though on the rest of the important stuff summarized here and the stuff that can be gleaned from many of our writings.
Onto more interesting things…
Image credit – Greek Food Ta Mystika, Pexels